Landlord and tenant — Option to break — Whether date of break determined from commencement of term or date of execution — Whether subsisting breach at termination date relevant — Whether landlords estopped from asserting termination date different from that asserted by tenants
On August 28
1981 there was an agreement for a lease between the plaintiff tenants and the
defendant landlords’ predecessor in title. On September 1 1981 the tenants went
into possession, and on January 6 1982 the parties executed a lease for a term
of 25 years from August 28 1981, the date of the agreement. Clause 4(9) of the
lease provided that the tenants could determine the lease by six months’ notice
expiring at the end of the 10th year of the term provided that there were no
breaches of covenant. The tenant gave notice on June 25 1991 to determine the
lease on January 5 1992. They contended that the 10th year of the term must be
calculated from the date of execution of the lease on January 6 1982 and not
from its commencement on August 28 1981; that if they were wrong the landlords’
agents had asserted that the tenants were entitled to rely on the later date
and therefore the landlords were estopped from asserting the earlier; that upon
the true construction of the lease the option to determine had been validly
exercised notwithstanding admitted breaches of the repairing covenants at the
termination date.
for the giving of the notice to determine was to be calculated by reference to
the date from which the term was expressed to commence, namely August 28 1981,
and not the date of execution of the lease. (2) The proviso that the covenants
were to be performed up to the termination date was a condition precedent to an
effective exercise of the right to break; there must be no subsisting breach on
the termination date. As there were admitted breaches of the repairing
covenants, had the notice been given in time it would have been ineffective. A
distinction must be made between a breach of covenant to repair on the
termination date and mere disrepair; a tenant was not in breach immediately a
disrepair arose. (3) On the facts there was no estoppel preventing the
landlords from asserting a termination date calculated from the commencement of
the term.
The following
cases are referred to in this report.
Bass
Holdings Ltd v Morton Music Ltd [1988] Ch
493; [1987] 3 WLR 543; [1987] 2 All ER 1001; [1987] 1 EGLR 214, CA
Bird v Baker (1858) 1 E&E 12
Bradshaw v Pawley [1980] 1 WLR 10; [1979] 3 All ER 273; (1979) 40
P&CR 496; [1980] EGD 100; 253 EG 693
Bunch v Farrow’s Bank Ltd [1917] 1 Ch 606
Cadogan
(Earl) v Guinness [1936] Ch 515
Colton v Becollda Property Investments Ltd [1950] 1 KB 216
Friar v Grey (1850) 5 Ex 584
Grey v Friar (1850) 15 QB 901; (1854) 4 HL Cas 565, HL
Hughes v Metropolitan Railway Co (1877) 2 App Cas 439
Jervis v Tomkinson (1856) 1 H&N 195
Pierson v Altrincham Urban Council (1917) 86 LJKB 969
Sidney
Bolsom Investment Trust Ltd v Karmios (E) &
Co (London) Ltd [1956] 1 QB 529; [1956] 2 WLR 625; [1956] 1 All ER 536, CA
Simons
v Associated Furnishers Ltd [1931] 1 Ch 397
This was a
claim by the tenants, Trane (UK) Ltd, for declarations and relief that a lease
dated January 6 1982 held from the landlords, Provident Mutual Life Assurance,
had been validly determined.
Geoffrey Zelin
(instructed by Lamb Brookes, of Basingstoke) appeared for the plaintiffs;
Nicholas Dowding (instructed by Herbert Smith) represented the defendants.
Giving
judgment, JUDGE COOKE said: This action is concerned with an attempt to
exercise a 10-year break option in a 25-year lease of industrial premises. Put
very shortly, the rival contentions are these.
(1) The
plaintiffs (the tenants) claim to have exercised the option validly in time and
in strict conformity with its terms.
(2) The
defendants (the landlords) say that the attempt to exercise the option was out
of time.
(3) To this
the tenants’ riposte is that if, on the true construction of the lease, it is
out of time then the landlords are estopped from relying on this because the
date on which the tenants relied was a date represented on behalf of the
landlords as being the correct date.
(4) But, say
the landlords, even if the tenants get that far they get no further because
they were in fact in breach of the covenant to repair between the date of the
notice and the termination date and there was a subsisting breach at the
termination date and therefore on the true construction of the option there is
no effective termination.
(5) The
tenants, while accepting the subsistence of the breach, say that on the true
construction of the option it is irrelevant.
Boiled down
still further, there are, I apprehend, really three questions for my decision:
(a) On the
true construction of the lease, in respect of what date must the termination
notice be given?
(b) Again a
construction point, does the option to renew require there to be no subsisting
breach of the termination date?
(c) A question
of mixed fact and law, if the termination date is that contended for by the
landlords, are the landlords estopped from asserting that a termination date
other than that relied on and asserted by the tenants is the right date?
I come first
to the facts, which are reasonably brief. The tenants are the United Kingdom
part of a multi-national concern, whose business lies in the world of air
conditioning. The premises, part of an industrial estate at Basingstoke and
known as Unit 1, Gastons Wood, were at all material times industrial premises
with ancillary office use. On August 28 1981, there was an agreement for a
lease between the tenants and the then landlords, Electricity Supply Nominees
(‘ESN’), and four days later, on September 1, the tenants went into possession.
The lease
from August 28 1981, the date of the agreement for a lease.
The lease
contained provisions of the usual kind, including five-year reviews of rent and
in clause 4(9) the tenants’ option to determine at the end of the 10th year. It
is this clause that is critical and I will return to it in detail later.
In August
1986, that is, five years from the term commencement date, the first rent
review negotiations started; and on June 4 1987 there was agreed and executed
the first rent review memorandum, fixing a reviewed rent of £39,500 as from
August 28 1986.
In June 1989,
ESN sold their interest in the property to the defendants and thereafter the
defendants became the reversioners.
By 1990 the
tenants’ requirements changed. As they saw matters at that stage, they were
unlikely in the long term to require the premises; they were aware that the
break date was approaching and the one solution to their problems was to
exercise the option to break. Their evidence (which I accept) was that at this
initial point they believed that the termination date to which any notice had
to be geared was August 28 1991, that is, 10 years from the date from which the
duration of the term was calculated. That starting date I will call ‘the term
date’ for the purposes of the rest of this judgment. Therefore, the necessary
six months’ notice would have to be given in February 1991; but to terminate
then might be inconveniently early, so they considered the proposition of
approaching the landlord on the basis that they would terminate and then take a
short lease. This in due course translated into an approach by Mr Broomfield
[Trane’s financial manager], on behalf of the tenants, to Gooch & Wagstaff,
managing agents of the landlord. This exchange is controversial and I shall
need to examine the evidence; but put neutrally for the moment what emerged
was:
(a) a proposal
by the landlord that rather than have a break and a short lease the break date
be put back two years;
(b) a
statement in a letter to Mr Broomfield that the vital termination date was
January 6 1992, that is, 10 years from the execution of the lease, so that it
would follow that the notice need not be given until early July. It may save
time if I say now that whatever other findings I make I accept the evidence of
the tenants’ witnesses to the effect that thereafter the tenants worked on the
basis that this was the right date; indeed it is clear that the pattern of
meetings became distinctly relaxed: they thought they had plenty of time.
On May 10
1991, a meeting was arranged between representatives of landlords and tenants.
The representatives of the landlords were Mr Dominic Daymond, a member of Gooch
& Wagstaff’s staff, who was junior to Mr John Hughes [arics] and Mr
Stephen Wilkes [arics]. Mr Hughes was not well and could not attend. Thus, there was nobody
there for the landlords who had been a party to the exchanges in November.
Recollections of the structure and order of events of this meeting, which was
not fully minuted, inevitably differ and may not matter; but I am quite
satisfied from the evidence that Mr Screwel [Trane’s general manager], for the
tenants, approached the matters for possible negotiation as the options open to
the tenants against the background of their ability to terminate the lease. Mr
Daymond intervened to say that it was all too late: the notice should have been
given in February for August and had not been. This took the wind thoroughly
out of Mr Screwel’s sails and, although he carried on, the rest of the meeting
was rather a non-event. Recriminations were sensibly kept until later.
Doing the best
they could in the circumstances, the tenants gave the notice which they would
be entitled to give if their version is right; it was given on June 25 1991 and
was accompanied, as it had to be, with a cheque for a sum equivalent to six
months’ rent. If effective, that notice would determine the lease on January 5
1992, which is what the tenants claim.
However, at
the date when the notice purported to take effect, there was subsisting a
number of minor breaches of covenant. Nobody suggests they amounted to a great
deal, but they were the sort of dilapidations frequently found by the
landlord’s surveyor at the termination of a lease. At one time it looked as if
these were going to be the cause of a substantial hearing. A Scott Schedule was
directed and prepared and expert reports were exchanged. In any event, it was
treated as common ground before me that these were subsisting breaches of
covenant; and it was common ground (and I wholly agree) that there was no point
in arguing whether they were minor, but for the purposes of this case the fact
that they were breaches was enough.
I think that
is all I need say, initially at least, about the facts. It is now convenient to
look at the clause itself in extenso. It is contained in clause 4(9) of
the lease and it says:
If the lessee
(meaning herein the said Trane (UK) Ltd only or [a guarantor who was taken up,
but who does not matter]) shall desire to determine the term hereby created at
the expiration of the tenth year thereof or [in the case of the guarantor] at
the date which would have been the expiration of the tenth year of the term and
none of [certain events to which I need not refer] have occurred and of such
desire shall give to the lessor not less than six months’ previous notice in
writing in that behalf, expiring at the end of the said tenth year, and if the
said lessee shall at the same time as the giving of the said notice pay to the
lessor an amount equivalent to six months’ rent at the rate of rent then
payable, then provided that the said lessee shall until the expiration of such
notice pay the rents hereby reserved and observe the form of the covenants on
its part herein contained, and provided further that the said lessee shall upon
such expiration deliver up vacant possession of the whole of the demised
premises the said term shall upon the expiration of such notice duly determine
without prejudice to any right of action or remedy by the party hereto in
respect of any antecedent covenant or other obligation hereunder.
I deal first
of all with the question of when the break date comes. What, in short order, is
the expiration of the 10th year, ie ‘of the lease hereby granted’. This being a
lease whose commencement date for the purpose of calculating the term is not
the same as the date of execution (‘the execution date’), the termination date
could, so it is argued, be the 10th anniversary of either.
It has to be
remembered, where a lease is constituted as this one is, that although of
course the estate in land cannot be created until the ink is dry on the lease
the contractual provisions can by agreement be related to any of the date of
execution, the date of commencement (‘the term date’), if different, or some
arbitrary date. There is nothing as a matter of general principle that requires
any particular provision to be framed in any particular way. In the end, of
course, the question is one that must be answered by construing the individual
lease with some assistance to be gained from authority.
In the
forefront of Mr Geoffrey Zelin’s argument, for the tenant, was Jervis v Tomkinson
(1856) 1 H&N 195, where it was held that the correct date for the purposes
of the proviso for cesser of the term was a date calculated by reference to the
date of execution. Mr Zelin says this case is directly in point and any
subsequent authority to the contrary is per incuriam in this case. But
Mr Nicholas Dowding says: (1) the words were different; (2) as the
determination was capable of operating as soon as the term commenced it must
refer to the estate in land and not to any part of the term pre execution
calculated from the commencement date. The proviso for cesser actually was that
if the salt (this was a case of a salt mine) should during the continuance of
the term fail by inevitable accident then the term was to cease. On the facts,
the salt did indeed fail prior to execution of the lease, but after the
commencement date (‘the term date’). Central to the actual judgment was the
statement by Parke B at p207: (1) that the term unquestionably began in point
of interest on the date of execution, although the duration of the term as to
computation of time was to be reckoned from the term date; and (2) that the
term did not begin until the date of execution; and therefore, (3) the proviso
for cesser referred only to things occurring after the date of execution.
For my part, I
do not think this constitutes authority for any general proposition that a
reference in a lease to the term of necessity is a reference to the period only
after the date of execution: it might well be authority for the proposition
that where the reference in the lease is to be construed as a reference to the
estate in being it must necessarily refer only to matters after the date of
execution. In that particular case,
estate, because the proviso for cesser only makes sense by reference to events
within the duration of the estate itself, otherwise the lease might never come
into operation at all. So I do not think this authority does all Mr Zelin would
like it to do; and it is rather less of a surprise that it was not applied in
subsequent decisions which are decisions on different issues.
Next in date
comes Bird v Baker (1858) 1 E&E 12. There a lease was granted
in July 1851 for 14 years from Christmas 1849, with power to break at the
expiration of the first seven years. The Court of Queen’s Bench held that the
break was at Christmas 1856, seven years from the term date and not seven years
from the later execution date. The judgments are brief, but firm, and it seems
not surprisingly to have weighed with Whiteman J that the break was meant to be
halfway through the term, which would only make sense with the earlier date.
The result is different from that of Jervis v Tomkinson and I
think consistent with a different approach to provisions that concern the
estate granted and provisions that relate to the length of term in point of
time.
Earl
Cadogan v Guinness [1936] Ch 515 was a case
on section 84 of the Law of Property Act 1925 and the case arose whether a
particular lease was one in respect of which 50 years of the term had expired,
thus giving jurisdiction to discharge or modify restrictive covenants. Clauson
J construed the statute as meaning reference to the estate and not to the
period of calculation, so the term which had run for years ran for that period
from the date of execution, but he added at p517, undoubtedly obiter,
that on the true construction of a lease, where there is a reference to the
first X years of the term, the true construction would be to measure from the
term date and not the execution date.
Mr Zelin
attacks this dictum as an obiter dictum and per incuriam of
Jervis v Tomkinson. Obiter it certainly is and one must be very
careful, especially with obiter dicta, even if high authority, in
unreserved judgments, which this one was. But I decline to hold that it was per
incuriam. In my view of Jervis v Tomkinson, the point is not
the same and the dictum is completely in line with Bird v Baker.
In Bradshaw
v Pawley [1980] 1 WLR 10*, the court was concerned with construing the
compromise of a Landlord and Tenant Act 1954 Part II, application and held that
irrespective of whether a new lease was granted the tenant could, and in fact
had, bound himself to pay rent from a much earlier date when the old lease
expired. Strictly, this is authority for the proposition that for purposes
other than the actual grant of the estate the landlord and tenant can stipulate
for obligations to run from a date anterior to the grant of the estate. In the
course of the judgment, at p15C, Sir Robert Megarry V-C cited with approval
both Bird v Baker and the dictum in Cadogan v Guinness.
*Editor’s
note: Also reported at (1979) 253 EG 693.
Finally,
though it is earlier in date, I should refer to Colton v Becollda
Property Investments Ltd [1950] 1 KB 216. This was a case where the Rent Acts
prohibited premiums being charged in respect of the grant of a lease of less
than 14 years. If the lease was calculated from the term date, it was not
within the Act; if from the execution date it was. The Court of Appeal, with no
hesitation whatever, followed and approved the decision in Cadogan v Guinness.
Its approach was the same: for the purposes of the statute look at what
estate was actually granted. It is not surprising, I think, in a case where the
statute carried a criminal sanction and was also, of course, concerned to
prevent evasion. Any other construction would have driven a hole through the
middle of the statutory provision.
Summarising
those authorities, I come thus far to this conclusion.
(a) Where what
is in point, either because of some provision in the lease or the requirements
of an Act of Parliament, is the length of the estate actually granted or
enjoyed, it is to that which the court must look and that can only be
ascertained by reference to the execution date.
(b) If the
provision in the lease is one which on its true construction relates to the
measurement of time or the fixing of a date or an obligation, not being one
tied in with the actual continuing existence of the estate at the relevant
date, it is generally proper, subject to the construction of the particular
instrument, to look at the term date.
(c) The
parties to a lease may fix on obligations by relation to whatever they choose,
whether inside or outside the period of the duration of the estate.
In the current
edition of Woodfall at p50069 a similar view is expressed. I am
comforted that the learned editors are of this view and I, for my part, approve
of what they say.
Having thus
reviewed the authorities, I come to consider the words of the present lease. To
go back to the words of clause 4(9), the opening requirement is a desire on the
part of the lessees ‘to determine the term hereby created at the expiration of
the tenth year thereof’. The notice which has to be given must expire ‘at the
end of the said tenth year’, ie and of necessity, as a matter of language, the
10th year of the term.
So what one is
looking for is the correct meaning of ‘the tenth year of the term’; and the
object of the clause is to fix the end of that year as the date on which things
have to happen if they happen at all.
Going back now
to the demise, clause 1, the demise is for the term of 25 years from August 28
1981, so prima facie if one is looking to anything that relates to the
measurement of the term, not least to discover when it ends, one applies this
formula. This lease, like many others of its kind and date, provides for review
of the rent. The scheme of this is set out in the fourth schedule, para 2,
which provides that for the purpose of that schedule the term shall be divided
into five consecutive periods of five years, the first commencing at the
commencement of the term and the last expiring on the expiration. So for this
purpose the term has to be the term starting on the August 1981 date; nothing
else makes sense.
There is
obviously the practical sense in the break date being also the review date and
one would normally expect those dates to be coterminous rather than different.
The decorating obligations in clause 2, subclauses (10) and (11), are all
geared to every five years of the term and the last year of the term, all again
consistent with division into equal periods of five years, which must make the
expression ‘the term’ mean the term starting on August 28 1981. So that the
last equal period expires on what on any view is the termination date, August
28 2006. So far all the provisions I have quoted make sense with the term being
for all purposes a period calculated from the term date, that is, the August
1981 date, and not from the execution date.
So far I can
see nothing on the words of the lease that suggest that the break clause should
contain a different meaning from other clauses. Further, there is nothing in
the break clause provision which requires a reference to (b), to the estate as
actually created and enjoyed, as opposed to measurement of time. But, says Mr
Zelin, there is one feature which would go to falsify this argument. In clause
2(9) the repairing obligation relates to ‘at all times during the term hereby
granted’ and therefore, says Mr Zelin, relates to disrepair occurring prior to
execution of the lease, if Mr Dowding’s construction is right, which Mr Zelin
says is an obvious pointer to that construction being wrong.
There are,
says Mr Dowding, two answers to this. (a) It is not an indication of absurd
construction because in fact pursuant to the agreement for lease the tenant
went into occupation a matter of a day or two after the term date; but (b)
there is no practical distinction between pre- and post-lease disrepair since
the first duty of a tenant under covenant for repair is to put the premises
into repair so far as they are out of it.
I find both
arguments compelling and they are, I think, a complete answer to Mr Zelin’s
proposition, which rests for its validity on the inevitable impracticability or
absurdity of the landlords’ construction.
Apart
altogether from the authorities therefore, I would construe clause 4(9) as
inevitably meaning a date measured from the term date rather than the execution
date; the reasons for so construing appear from what I have just said. The
principles that I have derived from the
judgment, a provision directed to the measurement of time and ascertainment of
date, as distinct from some provision that necessarily rests upon looking at
the estate as actually granted and enjoyed. I accordingly hold that the correct
date for the notice was the earlier date and accordingly the notice was not
given for the right date.
It is
convenient to continue the judgment by dealing with the other question of
construction first.
So the next
question which arises is, assuming, without for the present deciding, that the
landlords are estopped from asserting against the tenants that the notice was
given for the wrong date, would that notice in any event, because of subsisting
breaches of covenant, be effective to break the lease?
I come back,
therefore, to the words of clause 4(9). The clause having provided for the
notice then goes on to say:
Then provided
that the said lessee shall until expiration of such notice pay the rents … and
observe and perform the covenants on its part … and provided that [the tenant]
shall upon such expiration deliver up vacant possession of the whole of the
demised premises the term shall determine without prejudice to any right of
action or remedy of either party hereto in respect of any antecedent breach of
covenant or other obligation hereunder.
Those last
words are of great importance.
The short
point is whether on the true construction of these phrases there is a condition
precedent in the terms of the proviso so that unless the proviso is performed
to the letter and until midnight on the expiry date the notice cannot take
effect to break the lease; or whether it has, as Mr Zelin would say, some less
draconian meaning, for example, simply a restatement of the obligations of the
tenants. There is no doubt on the facts of the present case that if it is a
condition precedent there is no effective break since the tenants were clearly
in breach of the repairing covenant, albeit not to any great extent.
Like the first
point that I have had to consider, this kind of provision has been before the
courts before, in fact many times over the last century and a half, and has
been the subject of a good deal of authority. In my judgment, the right way to
approach the situation is as follows:
(1) Each
document has, of course, to be construed of itself to discover what the parts
of that instrument mean to do; but,
(2)
Authorities do give a general guide of how the court should approach a
particular provision or form of words. Obviously the nearer to the form under
consideration the more compelling the authority.
(3) If
notwithstanding the superficial resemblance to a hallowed form upon which the
courts have pronounced many times, the true construction of the instant form
shows that this time the parties meant something different the courts will, of
course, strive to give effect to what is found to be what the parties intended.
There is no particular formula for this. It is certainly not a case of setting
out and rebutting a presumption in favour of the hallowed form; but,
(4) It has to
be remembered there is a draftsman and therefore the parties he serves should
be regarded as having in mind and drafting against a background of what
practitioners, on the basis of authority, would normally regard the expression
as meaning. Thus, in one of the cases referred to, Bunch v Farrow’s
Bank Ltd [1917] 1 Ch 606 at p612, Neville J said these wise words, which I
respectfully adopt and follow:
That being
the practice of conveyancers, [ie attribution of particular meaning to the
instant form] it seems to me in the last degree undesirable to make minute
distinctions between one form of expression and another when to any plain mind
the intention of the parties is identical.
It cannot be
said that the consideration by the court of this kind of formula got off to the
most auspicious of starts, forming as it did the centre of a truly horrifying
legal saga, consisting of Friar v Grey (1850) 5 Ex (that is,
Wellsby, Hurlstone and Gordon) 584, Grey v Friar, the same
people, (1850) 15 QB 901, and in the House of Lords Grey v Friar,
again, (1854) 4 HL Cas 565. I do not propose to go at length into the history
of this litigation, which is so clearly and forcefully summarised in the Court
of Appeal’s judgment in Bass Holdings Ltd v Morton Music Ltd [1988]
Ch 493*. Suffice it to say this. The litigation, which was a classic product of
a bad period in the history of legal procedure, culminated in a decision in the
House of Lords. In that period, the appellate committee of their lordship’s
House sat in smaller numbers than they do today. In this case it was a
committee of two, the Lord Chancellor and Lord Brougham. As was then the
practice where the appeal concerned a question of law, they sought the advice
of the judges. Eleven judges gave their opinions, dividing eight to three. The
Lord Chancellor’s own inclinations were with the minority, but having
recognised where the majority view lay and that Lord Brougham, who was absent
through illness when the speeches were delivered, favoured the majority, he
moved the House in accordance with the majority view, and the decision of the
Exchequer Chamber in favour of the condition precedent therefore stood and the
appeal was dismissed.
*Editor’s
note: Also reported at [1987] 1 EGLR 214.
The decision
of the Court of Exchequer Chamber was a decision having Court of Appeal
authority, so whatever view was taken of the precise status of what the House
of Lords did in that case — and it certainly does not have the advantage of a
clearly stated decision on principle, as would be the practice today — none the
less the decision in favour of the condition precedent has for 140 years been,
all other things being equal, unassailable below the Court of Appeal and
probably below the House of Lords.
The decision
was followed, so far as I am aware, without exception down to modern times:
see, inter alia, Bunch Farrow’s Bank ibid; Simons v Associated
Furnishers Ltd [1931] 1 Ch 397; and Bass v Morton ibid, a
recent decision of the Court of Appeal. This last case is a decision on options
to renew and therefore, says Mr Zelin, is of no assistance on a break option. I
disagree. It seems to me there is no real distinction between the two and that
it is central to the Court of Appeal’s reasoning and the way in which they
applied the old authorities that there is not.
The end result
of these authorities is:
(a) all other
things being equal (see what I have said above), this type of proviso will be
construed as a condition precedent;
(b) it will
not be so construed as to mean that there must never have been any breach of
covenant; what has to be established is that there is no subsisting breach on
the break date, ie that as the clocks chime at midnight there is no obligation
left unperformed. For this the Bass case is clear modern authority at
Court of Appeal level.
In his very
able and attractive submissions to me, Mr Zelin sought to revisit Friar
v Grey and persuade me to take the view that in modern conditions a
court seeking to establish the intention of the parties would not follow such a
strict construction as did the majority of the judges who advised the House of
Lords and that the reasoning of the minority who did not favour the condition
precedent approach was to be preferred. I would go with him this far. Had the
clause in Friar v Grey come before me today for the first time
ever, I might have been persuaded that the reasoning of the minority (very
powerfully expressed reasoning), was right; but I pause to say that even so
some of the reasoning was based on the anxiety as to the extent of the clause
which has since been exploded in the Bass case. But then a century and a
half has passed and in that period courts have regularly followed the results
of Friar v Grey and the reasoning of the Exchequer Chamber and
the majority of the judges. It is far too late now, at least this side of the
House of Lords, to argue the general proposition in the way in which Mr Zelin
has done.
In order to
succeed, what he would have to do is to persuade me that this is a case where
the words used by the parties taken as a whole must mean that they intended
something different to what has been held to be the meaning of such a clause.
Mr Zelin was fully ready to meet this challenge. First of all (and critically),
he pointed out the proviso at the end of the clause for the reservation of
rights. Such a subclause goes back a long way and indeed (I will have to come
to this again) it is to be found in Friar v Grey itself. In all
probability it stems from the proposition, long exploded, that once the lease
is determined
these concluding words is quite meaningless if the parties intend a condition
precedent, because if what the parties have agreed is that a break is
permissible only if at the critical date there is no subsisting breach, to what
then can the reservation of rights refer? There can be nothing at all.
Therefore, the argument runs, it is not a condition precedent but merely a
reiteration of the need to keep the covenant with a saving for any breaches
that need to be sued for.
At first sight
this argument has its attractions, but one notices that it did not deter the
court from coming to the conclusion that it did in Friar v Grey where
just such concluding words were present. It is helpful here to see what the
court actually said about them. In the decision in the Exchequer Chamber at
pp599 to 600 of that report, Patteson J, who delivered the judgment in the
court, identified a number of reasons for the concluding words which were not
inconsistent with a condition precedent, thus: (i) ignorance by the lessor of
breaches until after he had acted on the break notice; (ii) waiver of the
condition precedent by the lessor; and (most critically, I think) (iii) the
clause applies to both parties, that is, to breaches by landlord as well as to
breaches by tenant.
As I say,
(iii) is particularly cogent and it is easily overlooked when you read the
clause itself; but all three seem to me as valid as when Patteson J set them
out in 1850 and, in my judgment, they answer Mr Zelin’s argument.
Mr Zelin’s
next argument was that while the words used in Friar v Grey look
to the past — I paraphrase this — all arrears having been paid, all covenants
having been performed, the words here look to the future, ie ‘provided that …
shall … until the expiry of the notice’ and that therefore something different
is intended. Try as I will, I cannot see why this should be so. Both I think
are different ways of expressing exactly the same thing, that is, that when the
notice takes effect there shall be no subsisting breach. It is, I think, one of
those minor variations against which Neville J so presciently warned. I cannot
see that it means that on this occasion the parties intended something other
than a condition precedent.
Next, said Mr
Zelin (a linked argument, I think), attention is to be drawn to the language in
the covenant for quiet enjoyment, that is, clause 2(1). Mr Zelin says that
there is really no difference in language between this and clause 4(9) and as
the covenant for quiet enjoyment is of course on authority not to be construed
as having its words as a condition precedent, so it follows. But, in fact, as
Mr Dowding points out, there are differences in language, and in any event I
would have thought that a covenant for quiet enjoyment, which has a rather
special status on authority, is of limited assistance in construing other
provisions of the lease.
His next
argument is to suggest that in Friar v Grey the breaches were
more serious than those in the present case and to argue (I think this is how
it goes) that the clause cannot be read so as to deprive the tenant of his
rights in the case of minor breaches, a fortiori breaches that may
happen at the last minute and simply cannot be remedied as the clock strikes 12.
The answer to
this argument I think is this. (a) There is no warrant at all on the language
used in distinguishing between greater and lesser breaches. (b) So far as
things happening at the last minute are concerned, that is, the tile that slips
from the roof as the clock strikes 12, the answer is that a breach of covenant
to repair means failure to repair as opposed to being out of repair. It is not
a warranty that the premises whenever inspected will be in perfect repair: such
a covenant would be an impossibility to keep. It is, as I believe, a covenant
to take all proper steps to repair the building once out of repair and to do so
with all proper speed and in a reasonable time. What is the right speed and
time must depend entirely on what is wrong; but so viewed last minute
dilapidations hardly constitute of themselves a breach.
There remain,
I think, two further points which Mr Zelin took. (1) If it is to be read as a
condition precedent it crystallises into a contract for surrender which affects
section 38 of the Landlord and Tenant Act 1954. I really cannot see how this
can be. The essence of a contract to surrender must mean that the tenant agrees
that in certain circumstances he must surrender, whether he wants to or not. I
cannot see how it can apply to a break clause which is entirely to be initiated
at the will of the tenant, which requires the tenant to do certain things
before he is allowed to get out of his obligations. (2) (A point I think of
greater substance.) Mr Zelin says, the clause contains a further proviso in
addition to performance of covenants to deliver up vacant possession of the
whole. But, says Mr Zelin, when you look at the provision in the lease as to
delivery up, that is, clause 2(25), to deliver up in good repair cannot take effect
until actual expiry. So, the argument runs, if the obligation can only take
effect after expiry or at expiry, how can it be a condition precedent to actual
expiry taking place? But Mr Dowding points out that the expiry referred to in
clause 4(9) is the expiration of the notice and not the lease. And, further,
that it is not a repetition of clause 2(25), but a wholly separate provision
relating indeed to vacant possession and not to repair. So, Mr Dowding’s
argument runs, at the moment the notice expires the tenants must have vacated
the premises and handed over the keys. If they do so, their break operates; if
they are late, they never can. For practical purposes, this is to ensure the
landlords, in giving the tenants this privilege, are assured that the tenants
will be out and that there will be clear premises with no subsequent risk of
litigation.
So construed,
in my judgment, there is no circle. While the tenants must time their actions
nicely, there is no reason why the vacating process (which is in the tenants’
hands entirely, after all) should not be fully carried through in sufficient
time if the tenants are to take advantage of their privilege. I therefore come
to the conclusion that Mr Dowding is right and Mr Zelin is wrong and that the
notice, even if it was valid for any reason, would not on the facts as agreed
have had the effect of determining the lease.
That
conclusion is, in fact, enough to dispose of the action because it means that
whether or not the tenants can say the landlords are estopped from saying the
notice was given at the wrong time does not matter because the notice actually
given was ineffective in any event. But in case this case should go further I
propose to give my findings on the estoppel issue also.
In short
summary, the case put forward by the tenant is this. In the exchanges by Mr
Broomfield of Trane and Mr Hughes of the landlords’ managing agents, Mr Hughes
represented that the appropriate date is the later one, that is, the lease
commencement date. Mr Broomfield acted on this to his detriment, he did not
give the notice in time and therefore, the argument concludes, the landlords
should not now be able to assert that the date is other than Mr Hughes said it
was.
To see whether
this contention may be valid requires, first of all, a short review of the
relevant evidence. Mr Broomfield at the relevant time was Trane’s financial
manager, he was responsible for the general manager, Mr Screwel. By August
1990, it was clear that the reorganisation of the company’s premises, including
possible limitations on time in which they would want to use the premises, was
all in the wind. The minutes of a managers’ meeting of August 17 1990, at which
Mr Broomfield and Mr Screwel were present, record that the break clause is
August 1991 and that notice would be required to be given by February. So this
was firmly in the officials’ minds and Mr Broomfield entirely accepts that.
There were clearly discussions between Mr Screwel and Mr Broomfield in early
November as to what to do. They obviously must have considered what the proper
date was. In his witness statement, Mr Broomfield says he did not think they
had access to the lease and to the agreement for the lease, but in his oral
evidence he resiled from that. I think it more probable than not they did have
access to the words of the clause, even if only through a copy, but I think if
they did it did not change their view.
On Mr
Screwel’s instructions, Mr Broomfield spoke to Mr Hughes and put the problem to
him, which was that while the tenants had no long-term use for the premises
they did not want to get out quite as early as the break clause would require
them to do. Mr Hughes considered the point and, said Mr Broomfield, said he
would ring back. In due course he came back, clearly having taken instructions,
and in that telephone call he explained that what the landlords would
be prepared to do would be to have a deed of variation, putting the date
forward by two years. Mr Hughes followed up this telephone call with a letter;
and this letter is critical. It is headed ‘Subject to Contract. Without
Prejudice’. In the second paragraph he says:
I now write
to advise you that I have received my client’s instructions following our
discussions in respect of the proposed option on the tenant’s behalf to
determine the lease with effect from 6.1.92.
That letter is
dated November 16 1990. There then follows the proposal. At the end of the
paragraph containing the proposal, he says apropos the proposal:
… whose sole
purpose would be to merely move the tenant’s right to determine the lease from
the existing date of 6.1.92 to 6.1.94 all other terms to remain unaltered.
The date, of
course, as I have found, is the wrong date.
This news was
good news to the tenants, because the more time they had to arrange their
affairs the better. Mr Broomfield reported to Mr Screwel: they had more time
than they thought. Mr Screwel accepted that report. Neither Mr Broomfield nor
Mr Screwel thought it advisable to check such a critical point. Mr Broomfield
said he assumed the landlords’ agents knew what they were doing. Mr Screwel’s
reaction was to breathe a sigh of relief: quite clearly, he had heard what he
wanted to hear.
There is not a
very big conflict between Mr Broomfield and Mr Hughes, though it is an
important one. Mr Hughes says this. He remembers receiving the telephone call
from Mr Broomfield. He points out that, as his firm manages more than 400
leases, he did not have the lease before him or its contents at his fingertips.
He says that if a break date was mentioned in that conversation it would not,
for this very reason, have been mentioned by him. He listened to what Mr
Broomfield had to say and said that he would take instructions.
On November
16, as can be seen from correspondence, he wrote to Mr Andrew Hill, the
landlords’ senior property man, seeking those instructions. That letter
contained a statement that the break date was January 6 1992. Asked about that
date, Mr Hughes says, ‘I have no recollection of how it got in, other than it
was suggested to me in the telephone conversation by Mr Broomfield’. He
received instructions from Mr Hill as to the proposal, rang Mr Broomfield, told
him of his instructions and then wrote the letter.
In
cross-examination, he accepted that copies of the leases were kept in his
firm’s offices, were easily available and could be referred to when needed. He
accepted he would normally, when telephoning, have looked at the lease because
it was important to him to know what the terms were and that he did this or would
have done this after Mr Broomfield’s telephone call. Nevertheless, he remained
of the view that he had not got the date from the lease, but from Mr
Broomfield.
Both these
witnesses were transparently honest men, trying to do the best they could to
recollect what had passed between them three and a half years ago. Simply as
witnesses, there was no particular reason why either should be more accurate
than the other. The greater help could be obtained from surrounding
circumstances and the inherent probability of events.
The essential
question at this point is whether the date comes from Mr Broomfield or Mr
Hughes. So far as the evidence goes, until the telephone conversation with Mr
Hughes there was no doubt in Mr Broomfield’s and therefore the tenants’ mind
that the right date was the earlier date: it was to this date they had been
working. There is no reason I can see why Mr Broomfield when he spoke to Mr
Hughes should have come out with any date different from the one to which he
had been working all through. I think it must be almost certain, though Mr
Broomfield is a bit less certain about this, that there were two telephone
calls. It is certain that Mr Hughes took instructions and in the way of things
it is probable that he would call Mr Broomfield back with the answer before or
at the same time as writing the confirmatory letter. If a date was mentioned on
the phone at all — and there is a good deal less than total certainty about
that — it is likely to have been in the second call and not the first.
So from where
did the wrong date come? It is in Mr Hughes’ mind before he takes instructions,
quite clearly, because he wrote it; and that is after the first telephone call
but before the second. The most obvious explanation must be that he looked at
the lease. It was the obvious thing to do, and it was made more probable by his
own evidence. And he simply misunderstood the break clause. In my judgment, it
is more probable than not that that is what happened and I so hold.
Mr Hughes was
surprised the tenants did not come back to him on his proposal and that nothing
more was heard until the meeting of May 10 1991. When one looks at what was
happening on the tenant’s side of the fence, the answer was all too clear: Mr
Broomfield reported to his masters on December 17 1990 that the tenants had a
further six months. At the February management meeting, the tenant was
sufficiently relaxed simply to put the question back to the next meeting. The
date went by. In May the tenants were ready to meet the landlords’ men to
discuss the options, only to discover, per Mr Daymond in the absence of
Mr Hughes, that it was all now far too late.
Those then are
the basic facts. I will need to refer to one or two more subsidiary items in
the appropriate place when I express my conclusions. I ought to get one point
out of the way. The letter of November 16 was headed: ‘Without prejudice.
Subject to contract’. If it was genuinely without prejudice, I could not
receive it in evidence, but it is quite apparent that it was not in any normal
sense a without prejudice communication, that is, a negotiation to settle a
dispute. There was no dispute. What was desired was a rearrangement of known
and accepted arrangements, which is quite different and not within the policy
of this head of evidential privilege at all. Mr Hughes accepted that so to head
the letter was bad practice. In the event, Mr Dowding did not seriously pursue
the point.
The general
principles of estoppel by representation are well enough known. For present
purposes the requirements are: (1) the representation must be capable of giving
rise to an estoppel; (2) it must have been intended to be acted on; (3) it must
have been reasonable in all the circumstances for the representee to have
relied on it and, inevitably, it must have been acted on to detriment.
I will take
these in turn. Mr Dowding’s argument against (1) the representation being
capable of giving rise to an estoppel is this. Both parties had an equal
opportunity of discovering the truth; they were commercial parties in
negotiation; the context of both the letter and the conversation was that the
parties were going by the lease and not by the letter or the conversation. I am
not convinced this is right. This was not a casual exchange. The tenants
consulted the landlords’ managing agents on the proposal, which would affect
their future relations, a proposal which everyone intended would be seriously
considered.
What Mr Hughes
said on, it appears, instructions and after consideration was what he put in
the letter. The date was not without importance because it links to the
proposal and would necessarily affect the attractiveness or otherwise of the
proposal and not least as to how long the tenants have got before deciding
whether and what to agree. The more time they had, in fact, the less need to
negotiate a special agreement. So it went well beyond the casual. It could, I
think, only sensibly have represented what the managing agent, who in terms of
what the lease meant, had a certain cachet if nothing else, represented was the
basis upon which the parties’ relations stood. I cannot, for my part, see why
such a statement should not be capable of giving rise to an estoppel.
(2) The
statement must be intended to be acted upon. One needs to be careful of this
proposition. On my reading of the authorities, it is an objective and not a
subjective test. Support for this view can be derived from so old a case as the
classic decision of the House of Lords in Hughes v Metropolitan
Railway Co (1877) 2 App Cas 439 and the last full paragraph of the speech
of Lord Selborne at the end of p451. In more recent times, in Sidney Bolsom
Investment Trust Ltd v E Karmios & Co (London) Ltd [1956] 1 All
ER 536, Denning LJ (as he then was) said at the foot of p539:
When I say it
must be ‘intended to be acted on’, I would add that a man must be taken to
intend what a reasonable person would understand him to intend.
See also for a
similar proposition the judgment of Lush J (as he then was) in Pierson v
Altrincham Urban Council (1917) 86 LJKB 969. Put simply, I think the
test is this. Is the representee reasonably entitled to assume that the
representor when making a representation that appeared on its face to be one
intended to be acted on did so intend?
In this case
there was a representation in the course of negotiations in clear terms which
it was pointless to make unless the representee was to be able to assume it to
be seriously meant and relied on. What Mr Hughes may have meant subjectively is
neither here nor there.
(3) Was it
therefore reasonable to act on it? Mr Dowding concentrated a good deal of his
attack on this. It must be said that the tenants in terms of the procedures
were rather casual. Mr Broomfield took no steps to check when the information
was under his hand: he simply told the meeting. Mr Screwel equally took no
steps to check this critical piece of information. The company secretary was a
lawyer and it does not look as if anybody asked him to read the lease. Everyone
just went forward on the basis of accepting what Mr Hughes had told them;
something indeed they were all too anxious to believe. This has given me
considerable cause to pause, but in the end I think it will not do; and for
this reason it was a representation very much against interest by the other
side which laymen at least would naturally assume would not be made unless that
other side accepted it and it was likely to be true. There is nowhere in any
rule that a representee is bound to check the accuracy of the representation;
indeed the law of misrepresentation itself was developed on quite different
lines.
Obviously, the
question of reasonableness would arise in cases where there is something in the
representation itself or the person making it which puts the representee at
once on inquiry that it may not be accurate or may not be made with sufficient
authority. A representation by the office boy of a multi-national company that
they have stocks of green cheese extracted from the moon would scarcely be
reasonably acted upon by anybody, but that is not this case.
Finally, Mr
Dowding had two more shots in his locker. One was directed as the fourth point,
was the representation acted on at all? I would have thought myself that the
evidence was clear enough: if one traces through what happened, a fortiori if
one looks at Mr Screwel’s evidence, it is clear the tenants believed they had
got plenty of time and they had no need to come to a decision or to give a
notice. They therefore so arranged their affairs as to leave their options
open. Giving notice would, after all, have closed off their options. Therefore
they must be taken to have taken no steps to give the notice which, had they
known the truth, they would have given or at least would have taken a proper
decision whether to give it or not. I hold they acted on the representation and
to their detriment.
Mr Dowding’s
second point was that Mr Hughes had no authority to give the representation at
all. The letter he wrote was written following taking instructions and he was
at that stage authorised to make the proposals. For my part, I would have
thought that at that stage the making of a representation which related
intimately to the proposals came within the scope of his authority. I hold
that.
I finally say
this. Some argument was directed as to whether this was perhaps an estoppel by
convention and not an estoppel by representation. I do not think in fact the
result would differ very much whichever it was, and I am bound to say for my
part I would not have thought it was an estoppel by convention. I do not think
I need elaborate that point further; but it follows that had I been of a
different view on the second point, ie the effectiveness of the notice, I would
have found that the landlords were estopped from asserting the true date. In
the event, I have said it does not matter and the tenants’ action fails.
