Bass Holdings Ltd v Morton Music Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE NICHOLLS,LORD JUSTICE KERR |
| Judgment Date | 19 March 1987 |
| Judgment citation (vLex) | [1987] EWCA Civ J0319-8 |
| Docket Number | 87/0385 |
| Court | Court of Appeal (Civil Division) |
| Date | 19 March 1987 |
[1987] EWCA Civ J0319-8
Lord Justice Kerr
Lord Justice Nicholls
and
Lord Justice Bingham
87/0385
CH95 B No.5853
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR. JUSTICE SCOTT)
Royal Courts of Justice
MR. ROBERT PRYOR QC and MR. NICHOLAS DOWDING (instructed by Messrs. Nutt & Oliver, Solicitors, London EC4Y 8DS) appeared on behalf of the Defendant (Appellant).
MR. PAUL MORGAN (instructed by Messrs. Nabarro Nathanson, Solicitors, London, SW1Y 6MR) appeared on behalf of the Plaintiff (Respondent)
This is an appeal from a judgment of Mr. Justice Scott given on 30th July 1986 and reported in (1987) 2 Weekly Law Reports 397. It arises from the trial of a number of preliminary issues concerning the validity of the exercise by the defendant tenants of an option for a further lease from the plaintiff landlords. The main controversy turns on the materiality, if any, of past breaches of covenants by the tenants, both positive and negative, whose effect was spent before the exercise of the option. This raises a point of considerable general importance. There is also a relatively minor issue on the validity of the wording of the letter which purported to exercise the option. The landlords issued an originating summons claiming declarations that on all these grounds there had been no valid exercise of the option. The learned judge agreed on the ground of the tenants' past breaches of one of the negative covenants in the lease, but he rejected the landlord's other contentions. The tenants now appeal to reverse this decision, and the landlords cross-appeal to uphold it on all the grounds raised by their summons.
The leased premises are the Queen's Hotel, Hamlet Court Road, Westcliffe-on-sea, Essex. The plaintiff freeholders form part of the well known brewery group, and the premises include a tied public house as well as a hotel. By a lease dated 20th September 1982 the plaintiffs let the premises to the defendants for "15 years computed from 1st April 1982" at a yearly rent of £15,000 "for the first three years of the said term". Thereafter the rent was to be subject to upward adjustments in accordance with a rent review procedure. The lease contained the usual types of covenants to be found in lettings of commercial premises, as well as a series of further covenants specifically designed for tied public houses. The covenants were both positive and negative without any purported distinction between them. Some contained both positive and negative obligations in the same provision, and the effect of others was put both positively and negatively in different provisions, e.g. a covenant to deal exclusively with the landlords and not to purchase any supplies from anyone else, or not to do anything which might cause the licence for the premises to lapse on the one hand, and to use best endeavours to ensure that it was regularly renewed on the other. There was also a provision for re-entry for any breach of covenant in the normal form.
Clause 9 contained the option which has given rise to the dispute.
"If the tenant shall be desirous of taking a further lease of the demised premises for a further term of 125 years from the date of the term hereby granted and shall not later than 29 September 1985 give to the lessors notice in writing of such its desire and if it shall have paid the rent hereby reserved and shall have performed and observed the several stipulations on its part herein contained and on its part to be performed and observed up to the date thereof then the lessors will on payment to them by the tenant of the sum of £300,000 let the demised premises to the tenant for a further term of 125 years from the date of the term hereby granted at a rent of one peppercorn per annum (if demanded) subject in all other respects to the same stipulations as are herein contained except this clause for renewal and save for the alterations referred to in Part III of the schedule hereto."
By a letter of 19th September 1985 from the tenants' then solicitors, which the landlord received on the following day, the tenants purported to exercise this option in the following terms:
"We act for Morton Music Ltd. the tenant of the above premises under a lease granted by you on 20 September 1982. We hereby give you notice of our clients desire under clause 9 of the lease to take a further term of the demised premises for 125 years from 1 April 1982 and otherwise upon the terms referred to in the lease. We are sending a copy of this letter to Messrs. Nabarro Nathanson your solicitors and we look forward to hearing from them in connection with the new lease accordingly."
The plaintiffs deny that this letter constituted an effective exercise of the option. First, they challenge the wording of the letter because it referred to the commencement of the new term as from 1st April 1982 whereas they contend that it should have been either from 20th September 1982, the date of the lease, or from 31st March 1997, the date of the expiry of the 15 year term. Secondly, and mainly, the plaintiffs rely on a number of breaches of covenants on the ground that these preclude the right to exercise the option in any event. One of these is disputed and its determination remains in issue, viz., whether the premises complied with the repairing and decorating covenants throughout the period from 20th September 1982 to 20th September 1985 inclusive. In that respect the tenants are said to have been in breach of covenant at the time when they purported to exercise the option. This is disputed by the tenants, but it is common ground that if the tenants were in breach at the time when they purported to exercise the option, then it must necessarily follow that it could not have been exercised validly. However, in order to avoid possibly needless proceedings to decide this issue of disputed fact, it was agreed that there should be a trial of the other two issues which I have mentioned, the form of the exercise of the option and the materiality, if any, of past breaches of covenant. I will deal first with the latter and main issue, which raises questions of principle.
The tenants' past breaches of covenant fall into two groups, one positive and one negative, and all of them are undisputed. The course of events was briefly as follows. By September 1984 rent due under the lease was in arrears to the extent of about £18,000 and the tenants were also in default in payment of water rates. These were breaches of positive covenants. On 11th September 1984 the plaintiffs re-entered the premises and forfeited the lease on account of the rent arrears. On 9th October 1984 the defendants issued a summons seeking relief from forfeiture. In reply to this application the plaintiffs relied on two breaches of a further negative covenant that
"The tenant will not apply under the Planning Law for planning permission in respect of the demised premises without the Lessors' prior written consent (such consent not to be unreasonably withheld)".
In that connection it is agreed that in March and again in October or November 1984 respectively two applications for outline planning permission relating to the premises were made on behalf of the tenants without the landlords' consent. Both were rejected by the local planning authority, and it is common ground that neither has caused any quantifiable loss or damage to the plaintiffs. When the plaintiffs relied upon these breaches of covenant as an additional ground for forfeiting the lease, the defendants applied for relief in relation to these breaches as well. Their application was granted by Master Dyson by an order made on 12th March and slightly varied on 1st April 1985. This recited an undertaking by the defendants at all times thereafter to comply with the covenant not to apply for planning permission without the plaintiffs' written consent. It also granted the defendants relief from forfeiture both in respect of the arrears of rent and water rates and in respect of these breaches of covenant, but subject to certain conditions. These required the defendants to pay the arrears of rent and water rates together with interest and the plaintiffs' taxed costs. Each of these conditions was complied with, so that the defendants' lease had been reinstated unconditionally before the purported exercise of the option.
The relief from forfeiture and reinstatement of the lease could obviously not undo any of the breaches of covenant in the sense that it could not be said that they had never taken place. On the other hand, the breaches lay wholly in the past and their effect was spent. It was not contended that any cause of action based upon them subsisted at the time of the purported exercise of the option other than a possible theoretical claim for nominal damages on the ground that the planning applications had been made without the landlords' consent. But this is a submission without any commercial or other sensible reality, and the judge rightly did not base himself upon it. Moreover, these admitted breaches of covenant, like the others, became subject to the proceedings between the parties and were dealt with in the resulting order. It follows that their effect was then spent.
This brings me to the classification of breaches of covenants by reference to the time of their occurrence and subsistence, on which the present issues turn. As explained below, there is clearly a long-standing conveyancing practice, going back more than two centuries, whereby tenants' options in leases...
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