Tenant’s option to terminate — Option exercisable solely by original tenant — Tenant assigning lease and subsequently taking reassignment — Landlords claiming option incapable of revival upon reassignment — Landlords’ claim allowed
By way of a lease dated 14 January 1994, the claimant landlords’ predecessor demised commercial premises in Oldbury, West Midlands, to Sketchley plc for a term of 25 years from 24 June 1993. Clause 2.1 of the lease provided that, where the context so admitted, the expression “the tenant” included the tenant’s successors in title. Clause 8 of the lease created a tenant’s option to determine upon the expiry of the 10th year of the term, but went on to provide that, for the purposes of that clause, the term “the tenant” should mean “Sketchley plc only and not its successors in title or its assigns”.
The original tenant, Sketchley plc, later changed its name to Semara Holdings Ltd (SHL). In October 1999, pursuant to a licence to assign granted by the landlords, SHL assigned the lease to Sketchley Retail Ltd. SHL subsequently changed its name to Sketchley Ltd, and Sketchley Retail Ltd, with the consent of the landlords, assigned the lease back to Sketchley Ltd. The lease accordingly became revested in the original tenant, now called Sketchley Ltd (the defendant)*.
In June 2002, the defendant served the claimants with a notice purporting to determine the lease in accordance with clause 8. The claimants sought a declaration that the notice was invalid, arguing that the right to terminate had ended when the lease was assigned to Sketchley Retail Ltd, and that the right was incapable of being revived by the reassignment to the defendant.
Held: The claim was allowed.
The claimants had rightly contended that it was commercially sensible to have an arrangement under which a right, such as a right to determine a lease, was available to the original lessee but which right expired upon assignment. An arrangement under which the assigning lessee could hope or expect to exercise the right should it reacquire the lease at some appropriate date in the future was commercially less intelligible, and the resulting uncertainty would clearly operate to the prejudice of the landlord and any assignee of the reversion: observations in Olympia & York Canary Wharf Ltd v Oil Property Investments Ltd [1994] 2 EGLR 48 and Max Factor Ltd v Wesleyan Assurance Society [1996] 2 EGLR 210 applied.
* Editor’s note: It was accepted that the defendant constituted the same legal entity as Sketchley plc.
Michael Barnes QC (instructed by Nabarro Nathanson) appeared for the claimants; Paul Morgan QC (instructed by Berwin Leighton Paisner) appeared for the defendant.
Alan Cooklin, barrister
