Dreams Ltd v Pavilion Property Trustees Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Miles |
| Judgment Date | 12 May 2020 |
| Neutral Citation | [2020] EWHC 1169 (Ch) |
| Date | 12 May 2020 |
| Docket Number | Case No: PT-2019-000450 |
| Court | Chancery Division |
[2020] EWHC 1169 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
PROPERTY, TRUSTS AND PROBATE LIST (ChD)
Royal Courts of Justice,
Rolls Building, Fetter Lane,
London, EC4A 1NL
Mr Justice Miles
Case No: PT-2019-000450
Anthony Tanney (instructed by Knights plc) for the Claimant
Stephanie Tozer Q.C. (instructed by Pinsent Masons LLP) for the Defendants
Hearing dates: 1 May 2020
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Introduction
This case is about an agreement for the surrender of a lease. I have heard the trial of two preliminary issues about it.
The Defendants are owners of a retail building in Margate, Kent, forming part of a retail estate. Under a lease dated 11 August 2006 the Defendants let the premises (“the Premises”) to a company called Dreams plc for a term ending in 2031 at a market rent. The lease contained full tenant's repairing covenants and a covenant by the tenant to remove its belongings and fixtures at the end of the term.
Dreams plc went into administration in 2013. On 25 April 2014, with the Defendants' consent, Dreams plc assigned the lease to the Claimant. On the same day the Claimant and the Defendants made a deed which shortened the term to 2024. This took effect in law as a surrender and re-grant of the lease on otherwise unchanged terms (the re-granted lease is referred to below as “the Lease”). The parties also entered a side agreement granting the Claimant rent and other concessions. They also entered on the same day into an Agreement for Surrender (“the AFS”).
The two preliminary issues are:
(1) Whether, on the true construction of the AFS, it was a condition of completion of the surrender that the tenant shall pay to the landlord a sum in damages (if any) in respect of dilapidations (if any) that were the responsibility of the tenant under the Lease; and
(2) Whether, on the true construction of the AFS, the tenant was obliged to give vacant possession before the landlord could be obliged to accept a surrender.
The Lease
The Lease included the following terms and covenants.
By clauses 2.3.1 and 3, the tenant agreed to pay the rent quarterly in advance. Schedule 2 provided for periodic rent reviews.
By cl. 2.3.2, the tenant agreed to pay as additional rent sums payable under schedules 3 and 4, interest under the terms of the Lease, and VAT. Schedule 3 covered insurance. By para 4.1 of it the landlord was obliged to insure and reinstate. Para 2.1 provided for the tenant to pay to the landlord on demand the due proportion of the insurance premiums incurred by the landlord. Schedule 4 provided for the payment of service charges. By para 1 of it the tenant was obliged to pay a due proportion of the service charge. The due proportion was calculated by reference to the lettable area of the Premises as a proportion of various units let by the landlord. By para 3.3 the due proportion of the service charge was to be discharged by payment in advance on the quarterly rent payment dates; the amounts being notified by the landlord.
By cl. 3.3 of the Lease, the tenant agreed to pay “Outgoings” on the property and to refund to the landlord on demand a fair and proper proportion of Outgoings paid by the landlord attributable to the Premises; and to the extent not included in the service charge to contribute to the expenses of cleaning, lighting and other expenses.
By cl. 3.4, the tenant covenanted to repair, maintain and clean the Premises.
By cl. 3.6, the landlord had the right to enter the Premises and carry out repairs not carried out by the tenant when notified of the requirement to do so; and by cl. 3.6.4, the tenant was obliged to pay on demand all expenses of the landlord in doing so, such expenses to be recoverable as rent.
By cl. 3.7.2, the tenant agreed, if requested by the landlord to do so, to remove its belongings at the end of the term, including its trade fixtures and fittings and notices, notice boards and signs.
By cl. 3.9, the tenant covenanted not to make alternations without consent and at the end of the term, on being required to do so by the landlord, to reinstate the Premises to the condition they were in at the start of the Lease.
By cl. 3.21, the tenant covenanted to reimburse the landlord for expenses incurred by the landlord in a variety of contexts, including the costs of preparing a schedule of dilapidations or the recovery or attempted recovery of rent, or in connection with any applications for consent or approval made under the Lease.
The AFS
The AFS was between the Defendants as the “Landlord” and the Claimant as the “Tenant”. It gave each party the right, on 6 months' written notice, to require the surrender of the Lease on a “Surrender Date”. For the Defendants, the Surrender Date was 25 April 2017. For the Claimant, the Surrender Dates were 25 April 2017 and 25 April 2019.
The AFS incorporated the Standard Commercial Property Conditions (2nd Ed.). Completion of the surrender on a Surrender Date was to take place by execution of a Transfer and Counterpart (“the Transfer”) in the form of a draft attached to the AFS. The agreement was therefore a contract (conditional on the giving of notice) for the transfer by the Claimant to the Defendants of an interest in land, with the Defendants being treated as buyers and the Claimant as seller.
The parties' respective obligations to make and accept a surrender of the Lease were contained in cl. 2.1 of the AFS.
By cl. 2.2, the surrender excluded tenant's trade fixtures, fittings, and equipment, but included all landlord's fixtures, fittings, and equipment.
Clause 6 concerned the arrangements for completion. Cl. 6.1 said that “Completion is to take place on the Completion Date”. That was defined to mean the relevant Surrender Date.
Cl. 6.2 provided that “[i]t is a condition of completion that the Tenant is to pay any money due on completion by direct credit” from its bank account to an account nominated by the Landlords' solicitors. Cl. 6.4 provided for completion to take place by express surrender when the Tenant was to deliver the executed Transfer, the Lease and keys of the Property, and required the Landlord to deliver an executed counterpart Transfer.
Cl. 8 stated: “The surrender is with vacant possession.”
Cl. 12.1 provided that “Up to and including Actual Completion all rents and other monies due under the Lease remain payable.” Cl. 12.2 required the tenant to pay on completion the apportioned part of such rents and monies attributable to any period up to and including Actual Completion. Cl.12.3 dealt with any necessary reimbursement of any overpaid proportion of advance payments made under the Lease. Cl.12.7 stated that in making any apportionment under cl. 12 it is to be assumed that the Tenant is tenant of the Property (and is therefore under an obligation to pay the rents and other monies due under the Lease) until the end of the effective date of apportionment.
Cl. 13 acknowledged that the obligations, covenants and conditions of the Lease were to remain in full force and effect until Actual Completion.
The draft Transfer annexed to the AFS provided, at cl. 11.1.8, for the release of the Claimant absolutely from its liabilities, covenants and obligations, past present and future, under the Lease (subject only to some immaterial provisions relating to service charges). Cl. 11.1.9 of the draft Transfer contained a reciprocal release in favour of the Defendants, but it was wider than cl. 11.1.8 in that it released the Defendants from all liabilities (whether or not under the Lease).
Service by the Claimant of notice under the AFS
On 16 October 2018 the Claimant notified the Defendants of its wish to surrender the Lease on 25 April 2019.
On 30 January 2019 the Defendants' surveyor inspected the Premises.
On 18 February 2019 the Defendants' solicitors wrote to the Claimant enclosing a priced schedule of dilapidations prepared by their surveyors, dated 30 January 2019. The Defendants reserved their rights in respect of any other disrepairs not identified in the schedule. The schedule put the amount that the Claimant would be liable for if the listed items were not rectified at £173,227 odd.
On 8 April 2019 the Defendants' solicitors wrote again saying that on termination of the Lease the Defendants required the Claimant to hand back the property in accordance with the schedule of dilapidations. It also required the removal of all tenant's belongings, trade fixtures and fittings, in accordance with cl. 3.7.2 of the Lease, and to make good any damage caused, in accordance with cl. 3.7.3. The letter reserved the Defendants' rights to claim for further disrepair not identified in the schedule of dilapidations.
On 10 April 2019 the Claimant's solicitors wrote saying that the claim by the Defendants as set out in the schedule of dilapidations would be covered by the release contained in the Transfer, to be executed on completion of the AFS.
On 11 April 2019 the Defendants' solicitors emailed stating that the requirement of the AFS that the tenant pay any money due on completion included the monies claimed in the schedule of dilapidations and saying that if that amount was not paid in full and on time, completion would not occur, so that the Lease would continue.
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