Avocet Industrial Estates LLP v Merol Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Morgan |
| Judgment Date | 19 December 2011 |
| Neutral Citation | [2011] EWHC 3422 (Ch) |
| Docket Number | Case No: OBS31107 |
| Court | Chancery Division |
| Date | 19 December 2011 |
[2011] EWHC 3422 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BRISTOL DISTRICT REGISTRY
Bristol Civil Justice Centre
2 Redcliff Street, Bristol, BS1 6GR
Mr Justice Morgan
Case No: OBS31107
Mr Alan Johns (instructed by Clarke Willmott LLP) for the Claimant
Mr Paul Letman (instructed by Joelson Wilson) for the Defendants
Hearing dates: 6 th and 7 th December 2011
Introduction
This case concerns a tenant's break clause contained in a lease of commercial premises. The question which arises is whether the First Defendant as tenant under the lease has validly operated the provisions of that break clause. The tenant says that it has, and the landlord says that the tenant has not.
The lease
The lease in question was granted on 17 th March 2005. By the lease, premises known as Units 300 and 400 Avocet Business Park, Dudbridge, Stroud, Gloucester were demised for the term of 10 years beginning on 1 st February 2005. The landlord under the lease was, and remains, Avocet Industrial Estates LLP, who is the Claimant herein. The tenant under the lease was originally known as Lomer Fine Foods Limited and is now known as Merol Limited and is the First Defendant herein. The Second Defendant is Tudor Rose International Limited (the parent company of the First Defendant) who joined in the lease as a guarantor of the tenant's obligations.
Clause 1 of the lease defined Annual Rent, Default Interest Rate, Interest Rate and Rent Payment Dates. The Annual Rent was an annual sum rising from £44,100 to £67,500 and was subject to review (pursuant to clause 7) with effect from a date which I understand is agreed to be 17 th March 2010. There is some ambiguity about the amount of the rent reserved after the end of the fourth year of the term until the review date and there was initially a dispute about that matter. However, at the trial the parties proceeded on the basis that the rent payable after the end of the fourth year of the term (and subject to review with effect from 17 th March 2010) was £67,500.
Default Interest Rate was defined as 4% above the Interest Rate which, in turn, was defined as:
"interest at the base lending rate from time to time of National Westminster Bank plc, or if that base lending rate stops being used or published than at a comparable commercial rate reasonably determined by the Landlord".
The Rent Payment Dates were the four usual quarter days.
Clause 2 of the lease reserved a rent which had five components. These were: (1) the Annual Rent, (2) a Service Charge, (3) an Insurance Rent, (4) all interest payable under the lease and (5) all other sums due under the lease.
Clause 6.1 of the lease obliged the tenant to pay the Annual Rent by four equal instalments in advance on the Rent Payment Dates. The clause further provided:
"The payments shall if required by the Landlord be made by banker's standing order."
Clause 8 of the lease dealt with the provision of services and the payment of a service charge. In summary, the clause required the tenant to pay an estimated service charge by four equal instalments on each of the Rent Payment Dates. The clause then provided for the landlord to procure the preparation of an account of the actual costs of services following which the tenant would be required to pay its share of any shortfall between the estimated costs and the actual costs or, alternatively, its share of any excess of the estimated costs over the actual costs would be credited against succeeding instalments due in relation to service charge.
Clause 9.3 of the lease required the tenant to pay "on demand" an insurance rent to the landlord. Further provisions of the lease required the tenant to make various other payments. Thus, clause 11 referred to the tenant paying costs in connection with matters such as water and sewerage; clause 11 did not expressly refer to the landlord making a demand for payment; this may have been on the basis that the relevant payment was to be made to a third party rather than to the landlord although, as will be seen, the landlord's managing agent regularly demanded reimbursement of costs which the landlord had incurred in relation to matters such as water and sewerage. Clause 12 referred to the tenant paying "on demand" a fair proportion of the costs of certain common items. Clause 15 referred to the tenant paying certain costs of the landlord including legal and professional costs on specified matters; this clause did not expressly refer to the landlord making a demand for payment.
Clause 14 dealt with Default Interest and Interest as follows:
"14.1 If any Annual Rent or any other money payable under this Lease has not been paid by the date it is due, whether it has been formally demanded or not, the Tenant shall pay the Landlord interest at the Default Interest Rate (both before and after any judgment) on that amount for the period from the due date to and including the date of payment.
14.2 If the Landlord does not demand or accept any Annual Rent or other money due or tendered under this Lease because the Landlord reasonably believes that the Tenant is in breach of any of the tenant covenants in this Lease, then the Tenant shall, when that amount is accepted by the Landlord, also pay interest at the Interest Rate on the amount for the period from the date the amount (or each part of it) became due until the date it is accepted by the Landlord."
Clause 17 of the lease provided that the Annual Rent and all other money due under the lease was to be paid by the tenant or any guarantor without deduction, counterclaim or set-off.
By clause 26 of the lease, the tenant covenanted to keep the demised premises in good repair and condition save that the tenant was not obliged to keep the demised premises in any better state or condition than they were in at the date of the lease, as evidenced by an attached schedule of condition. Clause 35.3 provided for certain circumstances in which the landlord, having carried out works of repair to the premises, was entitled to recover its costs from the tenant "on demand".
By clause 36, the tenant covenanted to indemnify the landlord against all expenses, costs, claims, damage and loss arising from certain matters, in particular, from a breach of the tenant's covenants. There was no express reference to the landlord making a demand for payment.
Clause 39 was a forfeiture clause. It contained the conventional wording which allowed forfeiture for non-payment of rent "whether it has been formally demanded or not".
The break clause
Clause 45 of the lease was the tenant's break clause. Clause 45.2 defined the Break Date; it is agreed that this date is 17 th March 2010. The right to break the lease was personal to the original tenant. In summary, clause 45 allowed the tenant to give a notice not less than three months before the Break Date to terminate the lease on the Break Date. The clause was a very detailed one and laid down a number of particular requirements as to the validity of a break notice and as to service of such a notice. In particular, clause 45.4 stated that the Break Notice should be of no effect in certain specified circumstances. It is appropriate to refer to three of the specified circumstances which were in these terms:
"45.4 A Break Notice shall be of no effect if:
…
45.4.4 at the Break Date any payment under this lease due to have been paid on or before that date, has not been paid, or
45.4.5 …
45.4.6 at the Break Date there is a subsisting material breach of any of the tenant covenants of this lease relating to the state of repair and condition of the Property, or
45.4.7 at the Break Date the Tenant has not paid to the Landlord a sum equal to 6 months Annual Rent"
Clause 45.14 stated that time was of the essence in respect of all time periods in clause 45 (save for one exception which is not material and which is in any event not wholly clear).
The rent deposit deed
On the same day as the lease, the landlord and the tenant entered into a Rent Deposit Deed. Pursuant to this deed, the tenant deposited £19,828.13 into an interest earning account. The deed allowed the landlord to draw on the deposit in certain circumstances of default by the tenant. By clause 8.2 of the deed, the tenant was entitled in certain circumstances to be paid the interest which accrued on the monies in the account. Clause 8.2 provided that:
"No such payment may be made if there is at that date any default by the Tenant …"
The Rent Deposit Deed defined "default" as a failure by the tenant to pay any part of the rents reserved by the lease or any money, including interest, payable pursuant to the lease. Clause 9.3 of the deed provided that the rights of the landlord under the deed were without limitation to the rights of the landlord under the lease.
The break notice
On 11 th August 2009, the solicitors then acting for the tenant (who are not the solicitors acting for the tenant in this litigation) served on the landlord a break notice pursuant to clause 45 to determine the lease on 17 th March 2010. The notice was sent by recorded delivery and was received by the landlord on 12 th August 2009. It is accepted that the notice was in an appropriate form and was served in accordance with clause 45.
The break notice was accompanied by a letter from the tenant's solicitors. That letter dealt with a number of matters which were referred to in clause 45. One such matter, pursuant to clause 45.4.6, related to there being no material breach of the tenant's covenants as regards the repair and condition of the property. The letter suggested that the parties should meet at the property to discuss whether any work of repair...
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