Summary

A tenant of industrial premises had lost its right to exercise a break clause once it had assigned the lease. The lease stated that it could exercise the right only as "the original tenant"

Facts

The appellants appealed against a decision (Norwich Union Life and Pensions v Linpac Mouldings Ltd (2009) EWHC 1602 (Ch), (2010) 1 P & CR 11) that the first appellant (T) irretrievably lost its right to break certain leases of industrial units when it assigned them to the second appellant (E). The respondent (L) was the reversionary owner of the units. In 1986 it granted licences to its then tenant to assign two leases to T. Those leases (the 1972 leases) were for 99 years from 1971 at rack rents. The licences contained a break clause exercisable in 2010, which was expressed to be for T's benefit only. In 2005 L granted a lease of another unit to T. That lease contained a tenant's break clause mirroring that in the licences, which in turn were varied to include reference to the new lease. T then, with L's consent, assigned all three leases to E. E and T were associated companies, but shortly afterwards E stopped being a member of the same group and went into administration. It stopped paying the rent and vacated the premises, which remained empty. Subsequently it sought L's consent to the re-assignment of the leases to T, which L refused on the ground that if it did so T would seek to terminate the leases to L's disadvantage. Notwithstanding that refusal, E executed a transfer of the leases to T and T purported to give L notice under the break clauses to determine the leases. L brought proceedings and obtained declarations that its refusal of consent was reasonable, and that T's right to break the leases had been irretrievably lost when it assigned those leases to E.

Held

(1) The 1986 licences and the 2005 lease were to be interpreted so as to give effect to the parties' intention to be ascertained in light of the commercial purpose and context of those documents and the factual setting known to the parties. (2) The right of a landlord or a tenant to bring a tenancy to an end by notice was an incident of the landlord-tenant relationship. The burden and benefit of a break clause would ordinarily pass with the reversion or the term, as "touching and concerning" the respective estates of the landlord and the tenant and as conditions of the enjoyment of those estates, Harbour Estates Ltd v HSBC Bank Plc (2004) EWHC 1714 (Ch), (2005) Ch 194 and City of London Corp v Fell (1993) QB 589 CA (Civ Div) considered. (3) Provision for a former tenant to bring a lease to an end at a time when it was not vested in him would be extraordinary, even if technically possible, not merely because of the ordinary position as described, but because of the difficulties of obtaining vacant possession from the business tenant entitled to the benefit of the security of tenure conferred by the Landlord and Tenant Act 1954, the improbability of the landlord or any assignee from the tenant being content to accept such a provision, and the availability of a more obvious and straightforward route to achieve the same practical end, namely subletting rather than assigning. (4) The Court of Appeal had never interpreted a contractual provision as conferring on a person a right to break a lease at a time when they were neither landlord nor tenant, Olympia & York Canary Wharf Ltd v Oil Property Investment Ltd (1995) 69 P & CR 43 CA (Civ Div), Max Factor Ltd v Wesleyan Assurance Society (1997) 74 P & CR 8 CA (Civ Div) and Brown & Root Technology Ltd v Sun Alliance and London Assurance Co Ltd (2001) Ch 733 CA (Civ Div) followed, Equinox Industrial (GP2) Ltd v Sketchley Ltd (2003) EWHC 2 (Ch), (2003) NPC 13 applied. (5) For all those reasons it would be reasonable to expect that competent property advisers would take particular care to make unambiguously clear, if intended, that a person would be entitled to break a lease not only when they were the tenant but even after they had assigned the lease. (6) It was undesirable that the courts should reach radically different interpretations of break clauses in commercial leases based on slight differences in language which were not obviously intended to achieve different objectives. (7) The break clause in the 2005 lease was expressly clear that T was only able to exercise the right to break the lease "as original tenant", meaning in its capacity as and so long as it was the tenant. It was impossible to argue that the words "as original tenant" denoted the first tenant whether or not it remained the tenant. Further, it would be very surprising if the parties had intended, by the wording in the lease, to achieve the extraordinary result for which T contended. Far from making such an intention unambiguously clear, they had spectacularly failed to make that purpose clear at all. T could not operate the break clause to bring the 2005 lease to an end. Therefore, it also could not exercise its right to break the 1972 leases.

Appeal dismissed