Norwich Union Life & Pensions Ltd v Linpac Mouldings Ltd [2009] EWHC 1602 (Ch); [2009] PLSCS 272 appears to have dashed any lingering hopes that the judiciary might relax its views on personal break rights in favour of tenants. The court was asked to decide three closely related points.
(1) Is a landlord entitled to refuse to allow a lease to be re-assigned to a tenant on the ground that this would disadvantage the landlord because it would allow the tenant to exercise a personal break right? (2) Does the reassignment of the lease to a former tenant restore a personal break right? (3) Is a former tenant entitled to exercise a right to determine a lease even though the lease has been assigned to, and remains vested in, some one else?
The court found in favour of the landlord on all three points. The judge saw no reason to depart from the principles laid down in Olympia & York Canary Wharf Ltd v Oil Property Investments Ltd [1994] 2 EGLR 48; [1994] 29 EG 121 (a refusal of consent, to avoid the operation of a break clause that would deprive a landlord of rental income, is a reasonable refusal), and Max Factor Ltd v Wesleyan Assurance Society [1995] 2 EGLR 38; [1995] 41 EG 146 (the reassignment of a lease was ineffective to restore the tenant’s right to terminate the lease). The judge also referred to Stait v Fenner [1912] 2 Ch 504 and Max Factor to support his ruling that the break clause was operable by the tenant in possession, and no one else. The judge cited the need for certainty and the requirements of commercial common sense as additional reasons for his decision.
Commercial common sense is also essential. It would not make commercial sense to attribute to the parties an intention that a personal break right should revive were the former tenant to reacquire the lease. This would cause uncertainty, which would be unattractive to the landlord and prospective purchasers of the reversion. The alternative proposition – that a lease is terminable by a party that once was, but no longer is, the tenant in possession – was equally nonsensical. If it were correct, a former tenant could deprive a landlord of its income, contrary to the wishes of both the landlord and the tenant in possession.
The message is clear. A tenant that wants to retain a personal break right must sublet the property, instead of assigning its lease. Alternatively, it could negotiate a release from liability with effect from the break date, when it applies for a licence to assign the lease. Better still: why not make appropriate provision in the lease?
Allyson Colby is a property law consultant
