Lease of unit in new shopping mall on floor intended to attract high-fashion customers – Landlord letting other part to record megastore – Tenant withholding rent – Whether landlord in repudiatory breach of implied covenant not to derogate from grant
The completion, in 1988, of a new shopping mall (the centre) in King’s Road, Chelsea, was attended by publicity that stated that the centre would possess “the atmosphere of a sophisticated department store” and an image that would “strongly differentiate the centre from the existing King’s Road trading, with its young ephemeral fashions”. In particular, it was stated that the letting policy governing the 16 units on the ground floor was to place an emphasis on “high fashion retail”. However, that concept was not realised by the initial lettings, where the units were, for the most part, taken by retailers catering more for a “mass” market than that originally contemplated.
In April 1989 the defendant, a supplier of garments designed for females in the 16-30 age group, took a 25-year lease of one of the ground-floor units. Over the following six years, there was a high turnover of ground-floor tenants, and the defendant’s own trading results were very disappointing. In or about 1996 the defendant agreed, in return for a substantial rent reduction over the relevant period, to tolerate serious disruption while the claimant landlord carried out major works to meet the wishes of the Virgin Group, which planned to sell recorded music from a Virgin Megastore to be located on the ground floor and a new mezzanine level. The opening of the megastore in November 1997 brought many more shoppers to the centre. However the defendant’s results deteriorated further.
In October 1998 the defendant decided that it was entitled to withhold rent. The claimant sued for the rent owing. The defendant counterclaimed, inter alia, for a declaration that its obligations under the lease were discharged on the ground that the claimant had committed a repudiatory breach of its implied covenant not to derogate from the grant. At the trial, the judge found as a fact that the original concept of a sophisticated department store was nothing more that an unrealised aspiration, and that the continuing losses could not be attributed to the operation of the megastore.
Held: The counterclaim was rejected.
1. The fact that the premises were let specifically as a retail unit within a centrally-managed centre did not imply that the landlord had assumed a general responsibility not to do anything, in the exercise of its reserved powers, that might cause damage to the business of its tenants. Accordingly, it could not be said that the action complained of had, in the words of Parker J in Browne v Flower [1911] 1 Ch 219 at p226, rendered the premises “unfit or materially less fit to be used for the particular purpose for which the demise was made”: Port v Griffith [1938] 1 All ER 295, Romulus Trading Co Ltd v Comet Properties Ltd [1996] 2 EGLR 70, Chartered Trust plc v Davies [1997] 2 EGLR 83 considered.
2. The 1996 rent reduction agreement precluded any claim that the claimant had broken an obligation not to alter the common parts so as to affect the character of the ground floor.
Jonathan Gaunt QC (instructed by DJ Freeman) appeared for the claimant; Simon Berry QC and Mark Warwick (instructed by Stringer Saul) appeared for the defendant.
Alan Cooklin, barrister
