Agreement to lease containing provisions equivalent to forfeiture clause – Proviso intended to replicate statutory provisions for relief – Whether proviso limited to breaches already recited in a notice corresponding to one served under section 146 of the Law of Property Act 1925
The defendants were statutorily responsible for the management of premises occupied by a cinema building standing between Regent Street and Heddon Street, London W1. The first named plaintiff (Dream Factory) was a subsidiary of the second named plaintiff (Greenhills), and had been formed for the specific purpose of implementing an agreement made by the plaintiffs and the defendants on February 14 1996. The agreement contemplated the grant to Dream Factory of a 25-year lease of the premises in the form of a draft annexed to the agreement, such entitlement to become unconditional on July 2 1996 (the access date). With the intent of converting the premises into a restaurant, the main obligations of Dream Factory were to obtain planning permission for the necessary modernisation works and to use all reasonable endeavours to complete the same within nine months of the access date. Greenhills signed the agreement as guarantor. Subject to a proviso in clause 18.4, clause 18.1 of the agreement gave the defendants the right to give immediate notice (a 18.1 notice) of termination on the occurrence of one or more events (the 18.2 events) specified in subparas 18.2.1 to 18.2.5. Those events included, under subpara 18.2.2, a failure by Dream Factory to start remedying any breach within 15 days after service by the defendants of a notice specifying the breach and requiring it to be made good. The remaining 18.2 events related to insolvency and the passing of time-limits.
The proviso declared that the defendants would not be entitled to terminate “in circumstances where had the lease been granted (and any notice served pursuant to Clause 18.2.2 had instead been served pursuant to Sections 146 or 147 . . . of the Law of Property Act 1925) the Tenant would have been entitled to relief from forfeiture . . .”. [Emphasis added.] Over the period January 20 to February 20 1997 the defendants served three 18.1 notices, which together alleged that: (i) the plaintiff companies were unable to pay their debts; (ii) Greenhills had gone into administrative receivership and, subsequently, into compulsory liquidation; and (iii) Dream Factory had failed to commence the works. The issue before the court was whether, as a matter of construction, the 18.4 proviso prevented the defendants’ notices from taking effect until it had been determined whether Dream Factory would have been entitled to relief if the lease had been granted. The defendants contended that the bracketed words limited the proviso to notices founded upon 18.2.2. Since none of the notices fell into that category, the proviso could not, it was maintained, assist Dream Factory. In support of that interpretation, the defendants argued that, among the specified determining events, only those recited in 18.2.2, which called for a notice substantially in the form prescribed by section 146 of the 1925 Act, truly mirrored the provisions of that Act as regards forfeiture proceedings. Before reaching his conclusion the judge pointed to a number of serious drafting defects in clause 18, a clause that appeared to be the work of several persons.
Held Judgment for the plaintiffs.
Confronted with poor drafting, rather than hold clause 18 void for uncertainty, the court should do its best to give effect to the parties’ underlying intention, which was to transport into an owner-licensee relationship the statutory provisions applicable to forfeiture proceedings brought against tenants. In this context the arguments advanced by the defendants were overly subtle and drew an unwarranted distinction between determining events expressed in terms of breach of covenant or condition and those which, like the grounds specified in the notices, were not so expressed: see Halliard Property Co v Jack Segal Ltd [1978] 1 WLR 377. The agreement, accordingly, remained in force unless or until the plaintiffs failed to obtain relief.
Jonathan Small (instructed by Edwin Coe) appeared for the first named plaintiff; Kirk Reynolds QC (instructed by Cameron McKenna) appeared for the defendant.
Alan Cooklin, barrister
