Fitzroy House Epworth Street (No. 1 and No. 2) v Financial Times Ltd
| Jurisdiction | England & Wales |
| Judge | HH Judge Thornton QC |
| Judgment Date | 04 November 2005 |
| Neutral Citation | [2005] EWHC 2391 (TCC) |
| Court | Queen's Bench Division (Technology and Construction Court) |
| Docket Number | Case No: HT-04–291 |
| Date | 04 November 2005 |
[2005] EWHC 2391 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
HH Judge Thornton QC
Case No: HT-04–291
Mr Mark Warwick ( instructed by Kanter Jules, 33 Margaret Street, London, W1G OJJ, DX: 53833 Oxford Circus North (Ref: CH 35152) for the claimants
Mr Paul Morgan QC (instructed by Wragge & Co LLP, 55 Colmore Row, Birmingham, B3 2AS (Ref: 1854338/SLH/DGC) for the defendant
Hearing dates: 15, 16, 19 & 21 September 2005
Introduction
This action is concerned with the lease of commercial premises known as Castle House, 37–45 (odd) Paul Street, London, EC2 ("Castle House"). The claimants (Fitzroy) are the joint legal owners of this property. They jointly hold the property for the benefit of Lionsgate Properties LP ("LP"), a limited liability partnership incorporated in Delaware, USA. LP acts through its General Partner, Lionsgate GP LLC ("GP") and this action was started by REIT (Corporate Directors) Ltd, a director of each of the Fitzroy companies on the instructions of GP that were given on LP's behalf. The property forms part of the Lionsgate portfolio of properties that was acquired by LP as part of its overall business of investment.
The property is a 3-storey office block forming one half of a pair of joined office blocks, being Castle House and Fitzroy House, which are located on the northern fringe of the City of London, south- east of the Old Street roundabout. It was leased by Fitzroy's predecessors in title, United Newspapers Publications Ltd as lessor, to the defendant ("Financial Times"), as lessee, by a 16-year lease that commenced on 1 April 1994 and expired on 10 April 2010. Fitzroy both acquired the freehold and an assignment of the lessor's interest under this lease on 8 August 2002.
The action is concerned with the break clause contained in the lease. This clause allowed the Financial Times, as tenant, to terminate the lease on notice if that termination notice was served at least 13 months prior to the break date of 1 April 2004 so long as the tenant had materially complied with all its obligations in the lease down to 1 April 2004. The Financial Times served a termination notice on 5 February 2003 seeking to break the lease on 1 April 2004, thereafter undertook substantial works of renovation and repair in an attempt to ensure that it had fully complied with the repairing covenants in the lease and then purported to terminate by vacating the premises on the termination date. Fitzroy immediately contended that the Financial Times was and remained in breach in that the premises remained in disrepair and contended and still contends that the lease was not broken and remains in being. These proceedings require the court to determine whether or not the Financial Times had materially complied with its repairing obligations and whether, in consequence it did or did not successfully terminate the lease. Fitzroy, in addition to claiming that the lease was not terminated, claims unpaid rent and other outgoings for the period since 1 April 2004.
A substantial sum turns on this dispute. This is because the unexpired term from 1 April 2004 was 6 years, 10 days if it is held that the Financial Times failed to terminate the lease with effect from that date and the rent passing at that time was £595,000 per annum with a rent review with a possible upwards increase from that date. Indeed, Fitzroy has served notice of an intended rent review if the lease is held still to be subsisting. The premises have remained empty since 1 April 2004 and no rent or outgoings have been offered or collected since then. Furthermore, neither party has sought a new tenant to take either a new lease or an assignment or sub-tenancy of the current lease. Moreover, the commercial lettings market was, in 2004, and remains sluggish so that it might take some time to find a new tenant once a new lease, or the existing lease, is marketed following this judgment. It is also likely that any new tenant, once found, would be able to negotiate a substantial initial rent-free period.
It follows that whoever succeeds on the issue relating to the termination of the lease will either recover, or be saved from paying, a very substantial sum. In the proceedings, Fitzroy is claiming unpaid rent and other outgoings to date and the Financial Times is counterclaiming a declaration that the lease was successfully terminated with effect from 1 April 2004 and a small sum which, if the lease was terminated, amounts to an overpayment of an insurance premium for the period after that date. If the lease is held to be subsisting, the Financial Times will remain liable for rent and other outgoings for the whole period up to 10 April 2010.
The Premises
Castle House makes up half of the joined pair of two U-shaped office blocks which are linked together to form a hollow rectangular shaped building. The building comprises about 31,050 square feet and is arranged on the ground to second floors on the corner of Epworth, Paul and Clere Streets, London, EC2. Fitzroy House is also U-shaped. The internal hollow of the block has a courtyard at ground floor level which is used as a car park that is shared by both blocks. Vehicular access to the courtyard is obtained via two passages running from the two roads abutting the two longer sides of the rectangle and these passages create the divide between the two blocks at ground floor level.
The building was both intended for use and constructed in the 1960s as a warehouse and was, in 2004, about 35 years old. The first planning consent that was granted, in 1968, was for warehouse use. However, that use never materialised and permission from the local Planning Authority for a change of use was obtained in 1970 to allow the building to be used for the preparation, compilation, printing and distribution of statistical and financial information with ancillary offices and storage. In about 1989, the building was substantially remodelled and refurbished by, amongst other features, the installation of air conditioning, so as to convert the building into full office user. Much of the plant dates back to this refurbishment. A further change of use permission was then obtained in 1994 to allow the building to be used as general offices within the uses permitted by Class B1 of the Town and Country Planning (Use Classes Order) 1987, albeit that office use was already permitted by the change of use permission obtained in 1970. This was followed by the lease which was dated 31 August 1994 and which took effect from 1 April 1994. Under that lease, Castle House has been used by the Financial Times as offices.
The building is located in a secondary or fringe area of the City of London, albeit within the London Borough of Islington where this borders the City of London. The offices are not usually equipped or finished to the same high standard as is normal for that market and office premises can be expected, on occasion, to revert to a combination of uses such as offices, studio, warehouse, manufacturing or quasi-industrial use. The commercial office rental levels in this area are often significantly lower than would be usual for the general City market. An obvious tenant for this building would have been in 1994, and still remains, an investment bank with prime City office accommodation who wanted cheaper back up offices located reasonably close to its main offices in the City.
The Lease
The lease is in standard form and contains no unusual covenants. The clause giving rise to the present dispute was, however, relatively unusual and there did not appear to be any direct authority available which provided clear guidance as to the meaning and effect of its principal provision.
The termination clause provided that:
"3(4) The [Financial Times only and not its successors in title] may give not less than thirteen months notice to [Fitzroy] of termination of this Lease on 1 April 2004. If:
(a) The [Financial Times] has materially complied with all its obligations under this Lease down to the date for which notice of termination has been given:
(b) …
then the Term shall cease on that date and (subject as mentioned below) no party has any further rights or obligations under this Lease. Termination of this Lease shall not affect any of [Fitzroy's] rights in connection with any breach by [the Financial Times] or its successors in title or the Guarantor of their obligations under this Lease which may have occurred before the date on which this Lease terminates."
The relevant obligations all related to the Financial Times' repairing and redecorating obligations. These were:
" 5. TENANT'S COVENANTS
(1) Introduction
The Tenant covenants with the Landlord to comply with its obligations set out in this clause … (4) Repair
The Tenant shall:
(a) put and keep the Property in repair …
(b) replace all The Landlord's fixtures and fittings in the Property which become beyond repair during the Term with those of no lesser quality;
(c) keep all windows and other glass in the Property (both inside and outside) clean, cleaning them once a month and more frequently where necessary;
(d) keep any open area within the Property adequately surfaced (where appropriate) and in good condition; …
(5) Redecoration
The Tenant shall redecorate the exterior of the Property in every third year and in the last year of the Term and the interior of the Property in every fifth year and in the last year of the Term in colours and patterns which, in the case of external decorations, shall first be approved by the Landlord at all time during the Term and, in the case of interior decorations, shall...
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