Landlord and tenant – Break clause – Lease of commercial premises – Validity of break notice – Break clause entitling defender tenant to terminate lease on giving 12 months’ notice to pursuer landlord on condition that not in breach of lease obligations at date of notice and/or termination date – Defender not fully complying with repairing obligations at date of break notice – Whether notice effective to end tenancy – Whether requirements of break clause met where breach remedied by termination date – Whether “breach” to be construed as material and non-remediable breach only – Claim allowed
The pursuer was the landlord and the defender was the tenant under two leases of adjacent office premises in Edinburgh for terms expiring in 2023. A break clause in the leases entitled the defender to bring the tenancy to an end in May 2013 on giving 12 months’ notice, provided that it was not “in breach of any of their obligations (under the lease in question) at the date of service of such notice and/or the termination date.
The defender served the necessary notices in May 2012 in respect of both leases. However, at the date of the notices, the defender had not fully performed its repairing obligations under the leases. The pursuer subsequently claimed that the notices had been ineffective to put an end to the leases and demanded payment of rent from May 2013; it contended that the defender had been in breach of its obligations on the date of the notices and had therefore failed to comply with the requirements of the break clause.
The defender submitted that non-performance of their repairing obligations on that date was not the same as breach of those obligations. It argued that: (i) even if it had been in breach at the date of the notice, the break clause none the less allowed the break option to be exercised so long as there was no breach as at the termination date, which was the operative date for that purpose; or (ii) the word “breach” in the context of the break clause meant a material, non-remediable breach of contract, whereas the non-performance of the repairing covenants had since been remedied by the expenditure of more than £1.3m to ensure that the premises were in a proper condition by May 2013.
Held: Judgment was given for the pursuer.
(1) On the proper construction of the break clause, a notice would be invalid if the defender was in breach at the date of the notice, the date of termination or both. That was the natural meaning of the words used. The defender’s proposed construction would render the concept of breach as at the date of the notice irrelevant and give no content to the word “or”.
(2) The term “breach” in the break clause was unqualified. The leases did not demonstrate an intention to distinguish between breach of the tenant’s obligations on the one hand and non-observance or non-performance on the other. That was so notwithstanding that the break clause referred only to breach whereas all three were referred to elsewhere in the lease, such as when dealing with the landlord’s right to bring the tenancy to an end in certain circumstances. Non-observance and non-performance were not intended to have a different meaning from breach of contract but were all ways of describing much the same thing. If a tenant did not perform its obligations, it was in breach of contract, and it was likewise with non-observance.
The defender accepted that it was not in compliance with its repairing obligations under the leases as at the date of the notices. Even if it could prove that there was no breach of the obligation to leave the premises in good repair at the expiry or sooner termination of the lease, there was still an admitted failure to comply with its other repair and maintenance obligations as at the date of the notices. On a proper construction of the break clause, that failure disentitled the defender from relying on the break notices served in May 2012: West Midland Golf Club Ltd v Ealing London Borough Council (1993) 68 P&CR 461 and Trygort (No 2) Ltd v UK Home Finance Ltd 2009 SC 100 distinguished.
The defender could not argue that the commercial purpose of the break clause was none the less served if there was no subsisting breach at the expiry of the notices. Such an approach would contradict the proper construction of the break clause, which required the tenant to be in compliance with its obligations as at the date of the notice. Landlords had a commercial interest in certainty as to whether or not a notice was valid The commercial purpose of requiring compliance with the repairing obligations as at the date of the break notice was to reassure the landlord that the property would be in a proper condition on the termination date, thereby allowing the marketing of the premises during the 12-month notice period: Bass Holdings Ltd v Morton Music Ltd [1988] Ch 493; [1987] 1 EGLR 214 considered.
It followed that both leases remained in full force and the defender was liable for non-payment of rent since May 2013.
Craig Sandison QC (instructed by Pinsent Masons LLP) appeared for the pursuer; Roddy Dunlop QC (instructed by Morton Fraser LLP) appeared for the defender.
Sally Dobson, barrister
