Underlease – Termination – Break clause – Claimant tenant mistakenly accepting condition in break clause requiring payment of rent up to termination date – Claimant seeking to terminate tenancy before end of period and limiting payment of rent to that date – Defendant landlord demanding full quarter’s rent – Claimant seeking declaration that underlease ended – Whether obligations in underlease subsisting until termination – Whether defendant owing duty to correct claimant’s mistake – Claim dismissed – Counterclaim allowed
In October 2008, the defendant landlord assigned to the claimant the residue of an underlease. The rent reserved was £190,000 per annum payable by equal quarterly payments in advance on the usual quarter days in every year and was for a term commencing on 12 October 2005 and expiring on 27 September 2014. The underlease also contained a break clause under which the claimant might determine the underlease on the expiration of the fifth year of the term by serving not less than six months prior written notice and paying the rents reserved and demanded up to the termination date.
The claimant sought to terminate the underlease by serving a notice on the defendant on 25 September 2009. It paid the rent for the period between the last quarter day of September 29, 2010 and the intended break clause date of October 11, 2010, rather than for the full quarter. The defendant sent a demand for the full quarter’s rent. The claimant sought confirmation from the defendant that it had in fact paid the correct sum of rent due in accordance with the condition in the break clause.
The defendant did not respond and the claimant did not pay the full quarter’s rent. The defendant took the view that the claimant had not complied with the break clause condition and had therefore failed to terminate the underlease. The claimant applied for summary judgment against the defendant, seeking a declaration that its underlease had been terminated. The defendant cross-applied for summary judgment.
The claimant argued that rent was only due up to the termination date. However, if the full quarter’s rent was found to be due, the court should grant permission to amend its defence to the counterclaim to plead that the defendant was estopped from relying on its failure to pay on the basis that it knew that the claimant had believed it was only liable to pay rent apportioned up the termination date.
Held: The claim was dismissed. The counterclaim was allowed.
(1) On a straightforward construction of the underlease, all obligations under it subsisted until its actual termination. It was not appropriate to separate out parts of the obligation in the underlease and say that there was a total failure of consideration merely because it had been terminated in future as regards the rent that was payable in advance for that period. The underlease contained a bundle of rights and obligations on both sides and the claimant had agreed to pay rent in advance as part of the overall consideration for obtaining the underlease from the defendant. Merely because the provisions obliged him to pay rent in advance even after the termination date did not mean that there was a failure of consideration as regards that payment merely because beneficial use of the premises was not taken. Looking at the overall package in the underlease, the claimant had obtained consideration in the form of the entirety of the underlease: Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 considered.
A full quarter’s rent fell due on the September quarter day, payable in advance and on that day it could not be certain that the lease would terminate on the termination date. There was a commercial and sensible certainty in requiring all obligations to operate until the very date of termination but not be retrospectively changed if an early termination occurred. There was no justification for rewriting the underlease. Accordingly, the claimant had failed to comply with the obligations as to payments of all rent due up to the termination date and its notice was accordingly invalid. There was no prospect of any defence to that contention as put forward by the defendant.
(2) The claimant plainly knew that the defendant was expecting the rent to be paid in full despite the break notice since the demand spoke for itself. There was no evidence to support the assertion that the claimant believed that the reduced rent only was payable. In order to prove that assertion, the claimant would have had to waive privilege in respect of any legal advice it might have received, which it had failed to do. Therefore, permission to amend the reply would be refused because there was no evidence to show that the arguments to support the proposed amendment had any prospect of success.
There was no general notion of good faith and no general proposition that where one party perceived the other side was making a mistake they had a duty to correct it. On the facts of the present case, the claimant could not take advantage of the defendant’s failure to inform it that its assumption of the lesser rent only was due was a mistake. In any event, if there was such a duty, the defendant had sufficiently discharged its duty by demanding the full rent and not resiling from it. The claimant could not draw any comfort from the silence and elevate that to a duty to tell the claimant that its assumption was wrong: MW Trustees Ltd v Telular Corp [2011] EWHC 104 (Ch), [2011] PLSCS 46 applied. Spiro v Lintern [1973] 1 WLR 1002; Avocet Industrial Estates LLP v Merol Ltd [2011] EWHC 3422 (Ch), [2012] 14 EG 64; and Ing Bank NV v Ros Roca SA [2011] EWCA Civ 353, [2012] 1 WLR 472 considered.
Stephen Jourdan QC (instructed by Macrae & Co LLP) appeared for the claimant; Katharine Holland QC (instructed by Squire Sanders (UK) LLP) appeared for the defendant.
Eileen O’Grady, barrister
