Landlord and tenant – Underlease – Surrender – Commercial premises – Defendants purporting to surrender superior lease and underlease of commercial premises — Claimant lender seeking relief as to validity and effect of surrender – Second defendant issuing Part 20 claim for declaration that deed of surrender of no effect or void – Fourth defendant seeking to strike out or summarily dismiss Part 20 claim – Second defendant applying for expedited trial – Applications dismissed – Applications for expedited trial allowed
The claimant lender sought relief in relation to the validity and the effect of a purported deed of surrender of commercial premises known as the Digiplex Megaplex Centre at Brookfields, Beaconsfield Road, Hayes, which had been entered into between the four defendants. A superior lease had been granted by the first defendant freeholder to the second defendant out of the freehold mortgaged to the claimant. The mortgage prohibited surrender of the lease without the claimant’s consent. An underlease was granted to the third defendant subject to the same restriction with the fourth defendant acting as guarantor. In the underlying claim, among other things, the claimant applied for a declaration that the purported deed of surrender was void and ineffective vis‑a‑vis itself; alternatively, an order that it be set aside; and a declaration that the second and fourth defendants continue to be liable under covenants in the superior lease and underlease.
The second defendant issued a Part 20 additional claim against the third and fourth defendants for a declaration that the deed of surrender was of no effect or was void and for further declaratory relief and/or an order that the deed of surrender be set aside or the court make such other order as it thinks fit. The only active defendants to the underlying claim were the second defendant and the fourth defendant. The only active defendant to the Part 20 claim was the fourth defendant.
The fourth defendant applied to strike out the Part 20 claim under CPR 3.4, or dismiss it summarily under CPR 24.2. The second defendant applied application for permission to amend the particulars of its additional claim against the third and fourth defendants but that was struck out by agreement. The application notice also sought an order for an expedited trial of the additional, but not the underlying, claim.
The second defendant contended that if the surrender of the superior lease was void and ineffective, then so too was the surrender of the underlease and the release of the fourth defendant from its guarantee. It argued that, the deed contained an implied condition precedent that the first defendant had the power to accept a surrender of the superior lease and since that implied condition precedent had never been satisfied, the surrender of the underlease, and the release of the fourth defendant from its guarantee, had never become effective. The second defendant also contended that the surrender deed was executed under a common mistake that the first defendant had the power to accept a surrender of the superior lease and since it did not, the surrender of the underlease, and the release of the fourth defendant from its guarantee, were void for mistake.
Held: The fourth defendant’s applications were dismissed. The application for an expedited trial was allowed.
(1) The underlying purpose of the deed was premised on the surrender of the superior lease. The deed contained an implied term that the parties did not intend the deed to take effect if the first defendant did not have the right to take the surrender of the superior lease. Any other conclusion would ascribe to them a false belief that the transaction had some other commercial purpose, which was not contingent on the surrender of the superior lease, and that the second defendant would have been willing to release the guarantee even if it was not itself being released from its own corresponding rental obligation. The deed would lack all commercial and practical coherence without the implied condition precedent. It was commercially inconceivable for the second defendant to have intended to release the fourth defendant from its guarantee irrespective of whether the first defendant was able to take a surrender of the superior lease. Although an implied term could not contradict an express term of the contact, one could have an express or implied condition precedent that prevented the whole contract coming into effect. The failure of the implied condition precedent meant that the surrender of the underlease, and the “unconditional” release of the guarantor, were also ineffective. The second defendant could only have intended to release the fourth defendant if it was itself going to be released from its own corresponding rental obligation. The incapacity of the parties to the deed to effect the agreed surrenders of the superior lease and the underlease without the consent of the claimant, which was neither sought for nor forthcoming, rendered the whole of the deed of surrender impossible of performance, including the release of the fourth defendant as guarantor of the underlease.
(2) This was not a case where the deed of surrender had allocated the risk of mistake to the second defendant so that there was no scope for the application of the doctrine of common mistake. Whether or not the second defendant would ultimately prove to be right at trial, its case was not manifestly ill‑founded. The fourth defendant had not demonstrated that it was, or that the second defendant’s case was devoid of any real prospect of success. Therefore, the strike‑out and summary judgment applications by the fourth defendant would be dismissed.
(3) The second defendant was not presently in possession; the third defendant was, at least in terms of receipt of rents from the part sublet and physical possession of the remainder. If the second defendant were held to remain on the hook, it would need to take immediate steps to recover possession, and to manage the premises and to let them, so as to mitigate its losses. If the fourth defendant was still liable as guarantor, it would have the financial incentive to take over the management and letting of the premises. The relief sought was declaratory in nature. The threshold condition of urgency had been satisfied. This case was not just about money, but about who should have to assume responsibility for the management of the premises. That justified giving it an element of priority, but not such as to prejudice the third defendant in the conduct of its defence to the claim. In all the circumstances, an order would be made for an expedited trial.
Jonathan Gaunt QC and Mark Sefton (instructed by Forsters LLP) appeared for the second defendant; Stephen Robins (instructed by White & Case LLP) appeared for the fourth defendant.
Eileen O’Grady, barrister
