Legal and General Assurance Society Ltd v Expeditors International (UK) Ltd
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE LEWISON |
| Judgment Date | 28 April 2006 |
| Neutral Citation | [2006] EWHC 1008 (Ch) |
| Court | Chancery Division |
| Date | 28 April 2006 |
| Docket Number | Case No: HC05C00884 |
[2006] EWHC 1008 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr. Justice Lewison
Case No: HC05C00884
MR. DEREK WOOD QC (instructed by Berwin Leighton Paisner) for the Claimant
MR. TIMOTHY DUTTON (instructed by Druces & Atlee) for the Defendant
Approved Judgment
The issue in this case is whether Expeditors International (UK) limited, the tenant, have successfully terminated two leases by the exercise of a break clause contained in each lease. The issue arises in the context of a claim for rent by the landlord, Legal & General Assurance Society Limited. Subject to the issue of the exercise of the break clause that claim is admitted. One lease is a lease of Unit 15, Heathrow Industrial Trading Estate. The other is a lease of Units 16 and 17 immediately next door. Each unit consists of a large warehouse and ancillary offices. Each unit was used by the tenant for their business as freight forwarders.
The demise of Unit 15 is described in schedule 1 to the lease. It is described by reference to red edging on an attached plan. The red edging on the attached plan does not include any part of the yard immediately outside Unit 15. The demise of Units 16 and 17 is similarly described. The red edging in that case does, however, include that part of the yard adjoining the two units. The yard itself is bounded by grass verges. None of the grass verges is within either demise.
The term of each lease ran from 18th January 2001 to 17th January 2011 subject to a right to break on 30th December 2004. The annual rent for Unit 15 was £114,000; the annual rent for Units 16 and 17 was £230,000. Under each lease the rent was payable in quarterly instalments on 1st January, 1st April, 1st July and 1st October in each year. Each lease, as I have said, contains a break clause. The break clause is in identical terms in each case. It is contained in clause 6.10 which reads as follows:
"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 Tenants' 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.
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.
3 Time is of the essence as to all the dates and periods referred to in this clause 6.10."
Although the word "Premises" is spelt with a capital P it is not defined by the lease which consistently uses the defined term, demised unit. In my view, however, the word premises where it appears in the break clause is to be interpreted in the same sense as the demised unit as defined. Break notices were served in relation to each unit on 12th June 2003, that is to say some 18 months before the break date. In the autumn of 2003 Mr. Mullis of Ingleton Wood, acting on behalf of Legal & General, prepared two schedules of dilapidations which were served on 17th December 2003. The tenant was represented by Mr. Robert Telling. He and Mr. Mullis negotiated over schedules of dilapidations and reached a compromise.
That compromise was embodied in a settlement agreement dated 21st October 2004. By the time of the settlement agreement all the rental payments up to and including the break date had of course been paid. The settlement agreement contained a number of definitions and two particular operative clauses as follows. Clause 2 provided:
"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 state and condition of the Premises."
Clause 4 provided:
"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."
The annexed schedule of conditions begins by setting out the instructions which were given to the two surveyors. Those instructions included this:
"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 & General Assurance Society Limited and the Tenant Expeditors International (UK) Limited."
There then follows a large number of photographs, over 100 in all, which give a good impression of how the units looked while they were in use by the tenant. In Unit 15, for example, one can see a double height row of four Portacabins and a metal staircase, floor to ceiling racking and large numbers of pallets on which goods for distribution are stored. The offices are fitted out in the usual way with office furniture, IT equipment, decorative potted plants and so on. Units 16 and 17 are similar. However outside Unit 17 in the yard there were two gas tanks secured to the ground. These gas tanks contained propane gas used for heating the warehouse.
It is common ground between the parties that the basis on which the payment of £172,000 was agreed is relevant to the effect of the settlement agreement. The schedules as served claim a sum in the order of £52,900 for Unit 15 and a sum of the order of £125,500 for Units 16 and 17 making £178,400 in total. The items included in the make up of those figures included items relating to the reinstatement of alterations and the removal of fixtures and fittings. These items would give rise to liability, if at all, only when the lease came to an end. If the lease were to continue there could be no question of the tenant having to remove its fixtures and fittings. The costs attributed to these items made up approximately 20% of the total.
The fixtures and fittings, at least on my reading of the schedule, include the vehicle guards included in Unit 16 and also the supports and barrier for the gas tanks. A cash sum was allocated for the removal of these items. In addition the schedule provided for the payment of a sum equivalent to loss of rent for six weeks in the case of each unit. If the lease did not come to an end the landlord would, of course, continue to receive the rent so there could be no such loss.
The landlord's initial claim of £178,400 was negotiated down to the agreed figure of £172,000. That is a relatively modest reduction. The plan was for the tenant to move out shortly before Christmas. An e-mail was sent round to the staff to remove all items by 18th December 2004. On 17th December 2004 the tenant began the physical process of removal to new premises at Polar Park, Bath Road, also on the fringes of Heathrow airport. Within a day or two the tenant was up and running at Polar Park and had ceased to trade from the Heathrow industrial estate. The move to Polar Park also involved the consolidation of the tenant's operations from at least two other locations.
On 20th December 2004 the forklift trucks were removed from the premises by Linde at the tenant's request. Approximately two days later Acorn Storage Equipment Limited removed metal racking from the premises which the tenant had sold to it earlier in that month.
On 21st December 2004 the tenant gave instructions to Calor Gas to remove the two gas tanks from outside Unit 17. The tenant had apparently tried to instruct Calor Gas to remove the tanks earlier but the fax had not been received. The tanks were subsequently removed, but not until February 2005.
The notices expired in accordance with their terms on 30th December 2004. On the following day, 31st December 2004, Mr. Philip Scott of Edwin Hill inspected the premises. He took some photographs. Most of the photographs are photographs of the exterior of the unit. He had the opportunity to take photographs of the interior of Unit 15 but apparently did not do so. He did, however, take two photographs of the interior of Unit 16. When Mr. Scott arrived at the units he found an elderly gentlemen sweeping inside or outside one of the units. It turned out that this gentlemen was called Tulip and was an employee of the tenant. Mr. Scott described what happened in his unchallenged evidence as follows: "I spoke with the man and told him that I was employed by Edwin Hill who are the landlord's agents. I explained I was there to take a photographic record of the units and he said that was OK. I cannot recall whether the man said who employed him. He did say that he was expecting another couple of lorry loads to go and that they would be out by the end of the day."
Mr. Brockway explained that although Mr. Scott may not have known who employed the man, he was, as I have said, an employee of the tenant. His job that day was to clear away anything that had been left behind. Mr. Brockway also said that a truck was due to arrive that day to take away a stack of pallets and dismantled garment rails. Since the stacks visible in Mr. Scott's photographs within Unit 16 are not shown in any subsequent photograph I infer that this is indeed what happened...
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