Legal and General Assurance Society Ltd v Expeditors International (UK) Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Lloyd,Lord Justice Sedley |
| Judgment Date | 24 January 2007 |
| Neutral Citation | [2007] EWCA Civ 7 |
| Docket Number | Case No: A3/2006/1106 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 January 2007 |
[2007] EWCA Civ 7
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MR JUSTICE LEWISON
Royal Courts of Justice
Strand, London, WC2A 2LL
Sir Anthony Clarke, Master of the Rolls
Lord Justice Sedley and
Lord Justice Lloyd
Case No: A3/2006/1106
Guy Fetherstonhaugh Q.C. (instructed by Halliwells LLP) for the Appellant
Timothy Dutton (instructed by Druces & Attlee) for the Respondent
This is an appeal against an order of Lewison J made on 28 April 2006 declaring that two leases had come to an end pursuant to the exercise of a break clause at the option of the Defendant tenant. The judge's decision was based on the effect of a separate written agreement between the parties and involved construing that agreement as including an implied term going beyond the effect of its express terms.
There are two leases of separate and adjacent premises at the Heathrow International Trading Estate, Green Lane, Hounslow, between the Claimant as landlord and the Defendant as tenant, but it is common ground that they were in materially identical terms and we have seen only one of them. The leases were dated 18 January 2001 and granted terms of ten years from that date at a rent, after an initial rent free period, of some £345,000 in aggregate between the two leases. The lease contained normal tenant's covenants, including provision for repair and redecoration, in clauses 3.3 and 3.4, and provision for the landlord to be able to enter the premises and give notice requiring the tenant to do repairs, and if they were not done then to do them at its expense, in clause 3.24. Clause 3.9 dealt with alterations and additions and precluded the tenant from making certain kinds of addition or alteration to the premises. Clause 3.9.5 entitled the landlord to require the tenant at the expiration of the tenancy to reinstate and make good the demised premises if there had been any addition or alteration to the premises not prohibited by clause 3.9.1, so as to reverse the effect of that addition or alteration. Clause 3.39 was a covenant by the tenant to yield up the premises (but not with trade and other tenant's fixtures) with vacant possession at the end of the term in good and substantial repair and condition and in accordance with the covenants in that respect.
The break clause is clause 6.10, as follows:—
“6.10 Tenant's option to determine
6.10.1 The Tenant may determine this Lease on 30 December 2004 by giving to the Landlord not less than six months' prior written notice to that effect, if:
6.10.1.1 the Tenant has paid the yearly rent reserved by this Lease and substantially performed and observed the Tenant's material covenants up to the date of expiry of the notice; and
6.10.1.2 on the expiry of the notice the Tenant delivers up to the Landlord the whole of the Premises with vacant possession.
6.10.2 On the expiry of the notice and subject to the observance and performance of the conditions in clause 6.10.1, the Term will cease and terminate, but without prejudice to the rights and remedies of one party against the other in respect of any antecedent breach of covenant.
6.10.3 Time is of the essence as to all the dates and periods referred to in this clause 6.10.”
The lease was excluded from the protection of Part II of the Landlord and Tenant Act 1954. It is not necessary to refer to any other provision in the lease.
The tenant served break notices under each lease under clause 6.10 on 12 June 2003, eighteen months or so ahead of the break date. The landlord responded by giving attention to the state and condition of the premises. On 17 December 2003, the landlord's solicitors sent a letter to the tenant enclosing schedules of dilapidations and wants of repair and reinstatement in respect of each lease. The items set out in the respective schedules included both matters covered by the repairing obligations, under clauses 3.3 and 3.4 of the lease, and also matters which would arise only under clause 3.9.5 by way of the reinstatement at the end of the lease of alterations or additions done by the tenant and not prohibited by the lease. In the letter enclosing the schedules, the landlord's solicitors asserted that the works of reinstatement and repair needed to be actioned by the tenant and that if they were not, the landlord reserved the right to make a claim for damages or, under clause 3.24 of the lease, to execute the works and reclaim the cost of those works. Those were points that the landlord was entitled to make, except in so far as works of reinstatement were concerned which the tenant was required to do before the end of the tenancy; clause 3.24 of the lease did not apply to those works.
The parties' respective surveyors entered into negotiations about the extent of the dilapidations and the monetary value to be assigned to the respective items. The landlord's original claim had been for a sum just over £178,000. It included substantial sums referable to reinstatement work under clause 3.9.5, and to six weeks' loss of rent. The basis of this latter item was that, if the tenant did not do the reinstatement work before the end of the term, the landlord would have to do it afterwards (because it could not require it to be done, or do it, under clause 3.24 of the lease) and time would be required for that which would delay the moment when the premises could be let to another tenant.
By the end of July 2004, the parties had agreed in principle on the sum of £172,000 as being the figure for settlement of the landlord's claim as set out in the schedules to which I have referred. The parties agreed that it would be sensible to record the then condition of the premises in a photographic schedule of condition which would define the state of the premises which the tenant would thereafter be obliged to maintain. The tenant's surveyors prepared such a schedule at an inspection on 24 August 2004 and it was signed on behalf of those surveyors and, by 9 September, on behalf of the landlord's surveyors. It is preceded by a brief narrative of which it is necessary to quote only paragraph 1.1, as follows:
“1.1 Our instructions were to prepare a Photographic Schedule of Condition on Unit 15, Units 16 and 17 Heathrow International Trading Estate, Green Lane, Hounslow. The schedule has been prepared as part of the full and final settlement of the Dilapidations Claims and Lease Breaks under the terms of the Leases for the respective Units as agreed under correspondence between the Landlord Legal and General Assurance Society Limited and the Tenant Expeditors International (UK) Limited.”
The matter was then referred to the parties' solicitors who prepared an agreement which was in due course executed and dated 21 October 2004. It is called the Settlement Agreement and I will refer to it under that name. It has four recitals as follows:—
“BACKGROUND
A. This deed is supplemental to the Lease.
B. The Landlord has inspected the Premises.
C. The inspection has revealed that the Tenant is in breach of the covenants in the Lease relating to repair.
D. The parties have agreed to resolve this dispute on the terms set out in this Deed.”
It has six operative clauses of which only two matter for present purposes, namely clauses 2 and 4. These were as follows:
“2. In consideration of £172,000 (exclusive of value added tax) paid by the Tenant to the Landlord and the Tenant's covenant in clause 4 the Landlord releases the Tenant absolutely from its liabilities, covenants and obligations past and present under the Lease so far as the same relate to the state and condition of the Premises.”
“4. The Tenant covenants with the Landlord that it will keep the Premises in no worse a state and condition than they were in as at 24 August 2004 as evidenced by the schedule of condition prepared by Telling Associates and annexed to this Deed.”
As indicated in clause 4, the agreed schedule of condition dated 24 August 2004 was annexed to the deed. The other clauses dealt with confidentiality, and what one might call lawyers' points about jurisdiction, choice of law and third parties.
The sum of £172,000 referred to in clause 2 was duly paid. The judge recorded, and it is not in dispute, that the basis on which that sum was calculated and agreed included provision for the reinstatement of alterations and the removal of fixtures and fittings which would be liabilities of the tenant only at the expiration of the lease under clause 3.9.5, and loss of rent which would arise only at that time.
The tenant started the process of vacating the premises in December 2004 but, as the judge held, had not completed that process by 30 December. If clause 6.10 of the lease had stood unaltered, the judge would have held that the break options had not been exercised effectively, because they were conditional on, among other things, vacant possession being given by 30 December 2004 and on the facts it was not. There is no challenge to that.
However, the judge decided the case in favour of the tenant on the basis that the effect of clause 6.10 had been modified by the operation of the Settlement Agreement. As it originally stood, clause 6.10 made the effect of the break notice conditional upon (a) payment of all rent falling due before 30 December 2004, (b) substantial performance and observance of the tenant's material covenants up to that date, and (c) delivery up of vacant possession on 30 December 2004. Time is of the essence under clause...
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