Landlord leasing shopping centre to tenant – Tenant subletting whole of centre by two underleases – Whether grant of underleases constituted breach of lease – Whether insurance demand caused landlord to lose right of forfeiture – Whether lease to be rectified – Whether appropriate to pierce corporate veil – Lease to be forfeited
In 1983, Co-operative Retail Services Ltd (CRS) leased a shopping centre, Westgate Centre, Rotherham, to Yorkshire Metropolitan Properties Ltd (YMP) for a term of 40 years. A fixed rent for the first five years was agreed. For the sixth year and thereafter, subject to rent reviews every five years, the rent was to be the greater of £40,000 or two-thirds of the total gross rent received by YMP as at February 25 of the year of each rent review. By clause 2(21)(a) of the lease, YMP was not to assign or underlet the whole of the premises without the licence or consent of CRS, which was not to be unreasonably withheld. It was also a term of the lease that YMP was to repay insurance premiums paid by CRS.
The centre was duly let by YMP for a total rent of £92,000. In March 1987 YMP executed two underleases and sublet part of the centre to YMP Leisure Ltd for £50,000 pa, and the remaining part to Larchtower Property Investments Ltd for £10,000 per annum. Neither leases contained rent review clauses. CRS claimed that the grant of the two underleases constituted a breach of clause 2(21)(a), and served a section 146 notice. Subsequently, CRS sent an invoice relating to insurance premiums. However, the cheque received by CRS from YPS was not cashed and was returned. YMP issued proceedings seeking declarations. CRS issued a counterclaim.
Held The plaintiff’s claim was dismissed.
1. YMP had effectively sublet the whole of the premises by way of the two underleases, which was a breach of clause 2(21)(a) and, since a valid section 146 notice had been served, the lease had been forfeited subject to any waiver: see Chatterton v Terrell [1923] AC 578.
2. Although the parties had agreed the insurance premiums were “recoverable by distress” they had not thereby agreed that they were to be treated as rent. In all the circumstances the demand was not so unequivocal that it could only be regarded as being consistent with the lease continuing. Therefore the demand had not amounted to a waiver: see Expert Clothing Service & Sales Ltd v Hillgate House Ltd [1986] Ch 340.
3. The lease was not to be rectified to impose an express obligation on YMP to underlet only at rack rents because it was not clear that the parties had intended those words to be included. It was to be rectified to the extent that clause 2(21)(c) required each underletting containing a rent review clause to require reviews to take effect from February 25 in each review year.
4. It was not appropriate to pierce the corporate veil. The two underleases represented genuine transactions, and therefore they could not be disregarded or treated as unreal.
Simon Berry QC and John Male (instructed by Dibb Lupton Alsop, of Sheffield) appeared for the plaintiff; Jonathan Gaunt QC and Michael Mark (instructed by Bury & Walkers, of Leeds) appeared for first defendant and plaintiff by counterclaim; Owen Rhys (instructed by Thomas Solicitors, of Loughborough) appeared for second, third and fourth defendants to the counterclaim.