Lease of commercial premises – Break clause – Conditions – Defendant tenant serving break notice – Defendant unable to comply with pre-condition as to carrying out of works by break date – Claimant landlord agreeing to accept effectiveness of break notice in return for payment by break date in lieu of works – Payment not made in time – Whether lease effectively terminated – Whether time of essence of payment such that break ineffective – Claim allowed The claimant was the landlord and the defendant was the tenant under a lease of office premises granted in 2006 for a term of 10 years at an initial rent of £50,909.50 pa, subject to review. The defendant also occupied adjoining premises under a 2008 lease. In August 2010, the defendant gave notice to exercise a break clause so as to terminate the 2006 lease on a break date in late February 2011. It later became apparent that the respondent would not be able to comply with a pre-condition of the lease for an effective break, namely that vacant possession should be given of the whole of the premises demised by the two leases. As an alternative, the defendant was required to carry out works to reinstate partitioning between the two premises and create an independent means of access. In mid-February 2011, just before the works were due to begin, the claimant insisted on seeing details of them first, on the ground that the lease required the works to be carried out to the claimant’s reasonable satisfaction. As an alternative, the claimant offered to accept a payment in lieu of the works. The defendant took the view that it would be unable to complete the works in time in light of the claimant’s requirements. The parties accordingly entered into an agreement by which the claimant agreed to accept the effectiveness of the break notice in return for a payment on or before the break date. Owing to an administrative error, the defendant failed to pay the sum relating to the works by the break date. The claimant refused to accept late performance of that obligation. It contended that time was of the essence in relation to the payment, as had expressly been the case with the original pre-conditions that it replaced, with the effect that the failure to make the payment on time had rendered the break ineffective. The defendant argued that time was not of the essence of the provision for payment and that the parties had agreed that the lease should terminate on the break date in any event. Held: The claim was allowed. The background to the agreement was that the defendant would remain the tenant under the 2006 lease unless and until it satisfied the pre-conditions under the lease for an effective termination. Time was of the essence in relation to the satisfaction of those conditions. The defendant wanted to bring about an effective exercise of the break clause but was unable to satisfy the existing pre-conditions by carrying out the necessary works by the break date. The agreement were drafted on the basis that it was still up to the defendant to satisfy the pre-conditions in the lease if it was effectively to terminate the lease. The language of the agreement did not suggest that the parties had agreed that the lease would determine in any event. The parties had understood that they were still operating within the framework of the conditions in the break clause in the lease, but were agreeing that the defendant could pay an agreed sum by the specified date instead of carrying out the works that would otherwise have been required. The reasonable observer would understand that, in the same way that time was of the essence in relation to the carrying out of the works by the break date, time was also intended to be of the essence in relation to satisfaction of the substitute obligation to make payment on or before that same date. That construction of the agreement was supported by commercial considerations. In the absence of any agreement, the break would be ineffective and the lease would continue. Although the claimant was prepared to compromise, there was no obvious reason for it to give up a provision for the works to be done by the break date in return for a substitute monetary obligation that the defendant could satisfy at a time of its choosing. It was significant that the agreement contained no provision for interest on any late payment. The inference was that the parties had intended the consequence of a failure to make the payment on time to be simply that the break notice was ineffective, the lease continued and the requirement to make the payment fell away. That conclusion was not affected by the provision in the agreement for payment of a global amount in respect of dilapidations and disrepair. Although such an agreement crystallised the tenant’s outstanding liabilities and the landlord’s entitlements, it was not consistent only with an agreement that the lease was to come to an end and could equally apply where the termination of the lease was intended to be conditional. Where a tenant expressed a clear wish to terminate a lease, the landlord might want to reach a commercial agreement for a once-and-for-all payment to settle all the obligations and liabilities that would arise if termination were to take place, while making termination of the lease conditional on payment of that agreed sum by a set date: Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd [2007] EWCA Civ 7; [2007] 2 P&CR 204 distinguished. Accordingly, the agreement was not intended to provide for a termination of the lease in any event. If the defendant wanted its break notice to be accepted as effective, it had to make the specified payment on or before the break date, failing which the claimant did not have to accept the effectiveness of the break notice and the lease would continue. Since the payment was not made on time, the lease had not been validly determined and continued in existence. Caroline Shea (instructed by Olswang LLP) appeared for the claimant; Thomas Jefferies (instructed by Boyes Turner, of Reading) appeared for the defendant. Sally Dobson, barrister
Intergraph (UK) Ltd v Wolfson Microelectronics plc
Lease of commercial premises – Break clause – Conditions – Defendant tenant serving break notice – Defendant unable to comply with pre-condition as to carrying out of works by break date – Claimant landlord agreeing to accept effectiveness of break notice in return for payment by break date in lieu of works – Payment not made in time – Whether lease effectively terminated – Whether time of essence of payment such that break ineffective – Claim allowed
The claimant was the landlord and the defendant was the tenant under a lease of office premises granted in 2006 for a term of 10 years at an initial rent of £50,909.50 pa, subject to review. The defendant also occupied adjoining premises under a 2008 lease. In August 2010, the defendant gave notice to exercise a break clause so as to terminate the 2006 lease on a break date in late February 2011. It later became apparent that the respondent would not be able to comply with a pre-condition of the lease for an effective break, namely that vacant possession should be given of the whole of the premises demised by the two leases. As an alternative, the defendant was required to carry out works to reinstate partitioning between the two premises and create an independent means of access.
In mid-February 2011, just before the works were due to begin, the claimant insisted on seeing details of them first, on the ground that the lease required the works to be carried out to the claimant’s reasonable satisfaction. As an alternative, the claimant offered to accept a payment in lieu of the works. The defendant took the view that it would be unable to complete the works in time in light of the claimant’s requirements. The parties accordingly entered into an agreement by which the claimant agreed to accept the effectiveness of the break notice in return for a payment on or before the break date.
Owing to an administrative error, the defendant failed to pay the sum relating to the works by the break date. The claimant refused to accept late performance of that obligation. It contended that time was of the essence in relation to the payment, as had expressly been the case with the original pre-conditions that it replaced, with the effect that the failure to make the payment on time had rendered the break ineffective. The defendant argued that time was not of the essence of the provision for payment and that the parties had agreed that the lease should terminate on the break date in any event.
Held: The claim was allowed.
The background to the agreement was that the defendant would remain the tenant under the 2006 lease unless and until it satisfied the pre-conditions under the lease for an effective termination. Time was of the essence in relation to the satisfaction of those conditions. The defendant wanted to bring about an effective exercise of the break clause but was unable to satisfy the existing pre-conditions by carrying out the necessary works by the break date.
The agreement were drafted on the basis that it was still up to the defendant to satisfy the pre-conditions in the lease if it was effectively to terminate the lease. The language of the agreement did not suggest that the parties had agreed that the lease would determine in any event. The parties had understood that they were still operating within the framework of the conditions in the break clause in the lease, but were agreeing that the defendant could pay an agreed sum by the specified date instead of carrying out the works that would otherwise have been required. The reasonable observer would understand that, in the same way that time was of the essence in relation to the carrying out of the works by the break date, time was also intended to be of the essence in relation to satisfaction of the substitute obligation to make payment on or before that same date. That construction of the agreement was supported by commercial considerations. In the absence of any agreement, the break would be ineffective and the lease would continue. Although the claimant was prepared to compromise, there was no obvious reason for it to give up a provision for the works to be done by the break date in return for a substitute monetary obligation that the defendant could satisfy at a time of its choosing. It was significant that the agreement contained no provision for interest on any late payment. The inference was that the parties had intended the consequence of a failure to make the payment on time to be simply that the break notice was ineffective, the lease continued and the requirement to make the payment fell away.
That conclusion was not affected by the provision in the agreement for payment of a global amount in respect of dilapidations and disrepair. Although such an agreement crystallised the tenant’s outstanding liabilities and the landlord’s entitlements, it was not consistent only with an agreement that the lease was to come to an end and could equally apply where the termination of the lease was intended to be conditional. Where a tenant expressed a clear wish to terminate a lease, the landlord might want to reach a commercial agreement for a once-and-for-all payment to settle all the obligations and liabilities that would arise if termination were to take place, while making termination of the lease conditional on payment of that agreed sum by a set date: Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd [2007] EWCA Civ 7; [2007] 2 P&CR 204 distinguished.
Accordingly, the agreement was not intended to provide for a termination of the lease in any event. If the defendant wanted its break notice to be accepted as effective, it had to make the specified payment on or before the break date, failing which the claimant did not have to accept the effectiveness of the break notice and the lease would continue. Since the payment was not made on time, the lease had not been validly determined and continued in existence.
Caroline Shea (instructed by Olswang LLP) appeared for the claimant; Thomas Jefferies (instructed by Boyes Turner, of Reading) appeared for the defendant.
Sally Dobson, barrister
