Insurance provisions in commercial lease — Either party entitled to terminate in certain events — Premises badly damaged by fire — Landlord failing to apply insurance proceeds towards reinstatement to required standard — Whether landlord precluded by such failure from exercising right to terminate — Claim allowed
Until the events giving rise to the dispute, the defendant tenant occupied a shop and part of a basement (the premises) under a 25-year lease that was granted in April 1997. The lease required the claimant landlord to insure the entire building, and further provided, inter alia, that, in the event of the premises being damaged or destroyed by any of the insured risks so as to be unfit for occupation or use: (i) the landlord should apply all insurance proceeds (not representing loss of rent) in rebuilding or reinstating the premises so damaged or destroyed (the reinstatement clause); (ii) either party could serve a notice to terminate the lease if, upon the expiry of three years commencing on the date of such damage or destruction, the premises had not been built or reinstated so as to be fit for the tenant’s occupation and use (the termination clause); and (iii) the exercise of the right to terminate would not prejudice any rights or obligation, that may have accrued to either party (the accrued rights clause).
In June 1988, the building was extensively damaged by fire. The tenant ceased trading and moved out, his obligation to pay rent being suspended under the terms of the lease. On being restored to possession, in April 2000, the tenant refused to resume its rent repayments, having complained that the premises had not been duly reinstated. That complaint was subsequently upheld in unsuccessful forfeiture proceedings brought by the landlord in the county court (the first action). In July 2001, the landlord served a notice (accompanied by a notice complying with section 25 of the Landlord and Tenant Act 1954) purporting to end the lease in accordance with the termination clause. In the instant High Court proceedings, the tenant disputed the validity of the notice on the basis that the landlord, being himself responsible for the state of the premises, was relying upon his own wrongdoing.
Held: The tenant’s claim was allowed.
In the light of the earlier action, it could no longer be disputed that the premises had not been rebuilt or reinstated in accordance with the reinstatement clause. However, the tenant was not estopped from challenging the rightfulness of the remedial steps taken by the landlord, since that issue was not before the court in the earlier action: see Henderson v Henderson (1843) 3 Hare 100 as recently considered in Johnson v Gore Wood & Co [2001] 2 WLR 72.
It was a well-established rule, to be seen as one of construction, that a contracting party will not, in normal circumstances, be entitled to take advantage of his own breach as against the other party: see per Lord Jauncey in Alghussein v Eton College [1991] 1 All ER 267, citing New Zealand Shipping Co v Société des Ateliers et Chantiers de France [1917] 2 KB 717 and Cheall v Association of Professional Executive Clerical and Computer Staff [1983] 2 AC 180. Although the rule gave way to a contrary intention, no such intention could be gathered from the accrued rights clause, which was inserted simply by way of draftsman’s caution. Given that sufficient money was paid by the insurers in respect of the policy on the building, the landlord was plainly in breach of his duty under the reinstatement clauses. That breach was plainly wrong within the principles applied in Alghussein.
Benedict Sefi (instructed by Sanders Brickwood,of Cirencester) appeared for the claimant; Jon Meredith Hardy (instructed by Wood, Awdry & Ford, of Marlborough) appeared for the defendant.
Alan Cooklin, barrister
