Commercial premises — Tenancy — Break clause — Clause allowing tenant to terminate lease if repairing covenant materially complied with — Whether “material compliance” applying to trivial breaches — Whether tenant successfully determining lease — Claim dismissed
The claimants were joint owners of commercial premises of which the defendant was the tenant under a 16-year lease from 1 April 1994. The lease contained a break clause allowing the defendant to terminate on notice as long as it had materially complied with all its obligations under the lease.
The defendant served a termination notice on 5 February 2003 seeking to break the lease on 1 April 2004. It undertook substantial works of renovation and repair to ensure that it had fully complied with the repairing covenants. It then purported to terminate by vacating the premises on the termination date. The claimants contended that the defendant was in breach of its lease, in that the premises remained in disrepair, so that the lease had not been successfully terminated.
The claimants contended, inter alia, that the “material compliance” condition meant that the only permitted breaches as at the break date would be trivial matters, such as a missing screw or similar.
Held: The claim was dismissed.
The lease had been terminated on 1 April 2004. Any breaches were either minor or trivial and the overall damage to the reversion was negligible or nil.
Not every defect had to be remedied. The obligation was to put and keep the premises in substantial repair. This did not include minor defects. The standard of repair was that to be expected by the reasonably minded tenant coming into the lease. Regard should be had to the age, type, location and established use of the building at that date, and the choice of repair methods would be left to the tenant, where applicable. The obligation was continuing and comprised both undertaking the work and achieving an acceptable outcome: Riverside Property Investments Ltd v Blackhawk Automotive [2004] EWHC 3052 (TCC); [2005] 1 EGLR 114 considered. A breach was material only if, in all the circumstances, and having regard to the proper efforts of the tenant to comply with its covenants and to the adverse effects on the landlord of any failure to do so, it would be fair and reasonable to refuse the tenant the privilege otherwise granted by the lease: Commercial Union Life Assurance Co Ltd v Label Ink Ltd [2001] L&TR 29 applied.
The purpose of limiting the right to exercise a break clause was to enable a landlord to preserve its legitimate interest in ensuring the tenant’s compliance with all its covenants before it vacated the premises. A breach of a repairing covenant would be material only if it jeopardised the interests of the landlord so as to prevent it from reletting speedily, maintaining the value of its reversion and preserving its income stream by way of further rent: Bairstow Eves (Securities) Ltd v Ripley [1992] 2 EGLR 47; [1992] 32 EG 52 considered.
Mark Warwick (instructed by Kanter Jules) appeared for the claimants; Paul Morgan QC (instructed by Wragge & Co LLP, of Birmingham) appeared for the defendant.
Eileen O’Grady, barrister
