Lease of commercial premises – Termination – Exercise of tenant’s break clause conditional upon vacant possession on given date – Tenant failing to vacate premises on that date – Whether break clause validly exercised – Judge finding condition waived under terms of prior settlement agreement reached between parties – Appeal dismissed
The appellant was the landlord and the respondent was the tenant under two leases of commercial premises for terms of 10 years from January 2001. Pursuant to a break clause, the respondent had an option to determine the leases at the end of December 2004 by giving not less than six months’ prior notice to the appellant. The exercise of the option was conditional upon the respondent having paid the yearly rent and complied with the relevant covenants in the leases up to the date of expiry of the notice, and upon it delivering up the premises on that date with vacant possession. Time was stated to be of the essence with regard to all the dates and periods referred to in the break clause.
The respondent served notice in June 2003 of its intention to exercise the break clause. Negotiations ensued regarding the respondent’s accrued liability for repairs and reinstatement under the terms of the lease. The appellant’s claims included a sum in respect of notional loss of rent after the end of the lease for the period required to carry out the necessary works. A settlement was reached under which the respondent paid an agreed sum to the appellant and, in return, the appellant released it from all liabilities under the lease concerning the state of the premises. The respondent also covenanted to keep the premises in no worse a state and condition than they were in as at 24 August 2004, which was the date of the inspection by the appellant’s surveyor.
The respondent began vacating the premises in December 2004 but had not completely done so by the end of the month. The appellant brought proceedings, in which it contended that the lease was still in existence because the respondent had failed to comply with the agreed conditions for exercising the break clause. Rejecting that contention, the judge found that it had been implied into the settlement that the appellant had waived compliance with the remaining conditions of the break clause, so that the notices already served would terminate the leases without further action on the part of the respondent. The appellant appealed.
Held (Lloyd LJ dissenting): The appeal was dismissed.
Per Sir Anthony Clarke MR: It was necessary, in order to give business efficacy to the settlement, to imply a term to the effect that the leases would come to an end whether or not the respondent succeeded in giving vacant possession by the end of December 2004. There was no sensible basis upon which the respondent would pay a sum that was agreed to include a significant amount in respect of notional rent after the end of the lease unless the lease had in fact come to an end. Moreover, the settlement entitled the appellant to receive money to which it would not have been entitled for some years if the lease had not terminated on the relevant date. Any failure by the respondent to give vacant possession at the end of December 2004 would entitle the appellant to compensation under the lease, concerning delivery up with vacant possession at the end of the term, but would not render the exercise of the break clause ineffective.
Per Sedley LJ: As a matter of construction, the meaning and effect of the express terms of the settlement agreement was that the break notices were to take effect irrespective of the provisions of the break clause in the lease; that was the manifest intention of the parties and it was not necessary to imply a term to achieve that result.
Guy Fetherstonhaugh QC (instructed by Halliwells LLP) appeared for the appellant; Timothy Dutton (instructed by Druces & Attlee) appeared for the respondent.
Sally Dobson, barrister
