Break clause — Construction — Appellant tenant’s break clause exercisable on condition vacant possession given — Tenant unable to fulfil vacant possession requirement in respect of part of building leased back to original landlord — Whether lease to be construed so as to exclude that part from requirement — Whether term to be implied to that effect — Appeal dismissed
The appellant held a lease of an office building that was granted in 1993 by SA Ltd, the predecessor in title of the respondent landlord. SA Ltd held an underlease, granted on the same date, of ground-floor shop units in the building. The original intention, at the time of the agreement for lease in 1989, was that planning permission would be obtained for office use of the units, which would then be occupied by the appellant; the underlease stemmed from a supplemental agreement providing for a leaseback of those units if the contemplated permission were not forthcoming. The lease contained a tenant’s break clause, giving it an option to determine the tenancy at the end of the 15th year of the term, conditional upon its giving vacant possession of the “demised premises”.
The appellant sought a declaration that the break clause, properly construed so as to give effect to the parties’ intentions, required it to give vacant possession of only that part of the building not underlet to SA Ltd. In the alternative, it contended that terms to that effect should be implied. In support of its claim, it pointed out that if the clause were construed as requiring vacant possession of the whole building, it would never be able to exercise the option to determine because of the existence of the underlease. The judge considered that it was not sufficiently obvious that a mistake had occurred in the drafting of the lease that should be corrected by the process of construction, and he refused to imply the relevant terms. The appellant appealed.
Held: The appeal was dismissed.
1. Although the court had power to correct obvious errors by the process of construction, the break clause was not an obvious nonsense. The language of the contract was clear. “Demised premises” included the shop units, and no amount of background evidence could change that. There was no room for implying terms, in the light of the rule that implied terms should not contradict any express term of a contract.
2. The judge had properly exercised his discretion to set aside the summary judgment on the rectification issue. It was clear that a mistake had been made, and that the parties would have corrected it had it been drawn to their attention. It was intended that the break clause should work, and not be subject to a stranglehold by the landlord.
Jonathan Brock QC and Catherine Taskis (instructed by Clyde & Co) appeared for the appellant; Kim Lewison QC (instructed by Herbert Smith) appeared for the respondent.
Sally Dobson, barrister
