The tenant had the option to take a further lease on giving written notice of their desire ‘if it shall have . . performed and observed the several stipulations on its part to be performed and observed up to the date of [the notice]’. The question was whether the clause required the reading that past or spent breaches of covenant would preclude the exercise of the option. Bass Holdings Ltd claimed against Morton Music Ltd for breaches of covenant.
Held: Morton Music’s appeal succeeded. The court reviewed the authorities.
Kerr LJ: ‘(1) The first question is whether, on the true construction of the proviso in question, the absence of any material breaches of covenant by the defendants is a condition precedent to the exercise of the option, as well as the giving of the requisite notice purporting to exercise the option. Generally, and admittedly in the present case, the proviso contains a double condition precedent, viz. (i) the absence of any material breaches of covenants and (ii) compliance with the requirement as to notice.
(2) That, however, leaves the crucial question whether the condition precedent (i), that there must be no material breaches of covenant by the defendants, applies to spent as well as to subsisting breaches. This question is covered by dicta in numerous cases, going back in particular to Grey v. Friar (1854) 4 H.L.Cas. 565, and by the decision of Clauson J. in Simons v. Associated Furnishers Ltd. [1931] 1 Ch. 379.
The upshot of these authorities is that spent breaches will not destroy the tenant’s right to exercise the option, but subsisting breaches will. As shown by the passages to which I refer below, the reasoning is in effect as follows. First, it must be accepted that absolute and precise compliance by the tenant with every single covenant throughout the period of the lease prior to the operative date is virtually impossible of attainment. If this were required as a condition precedent, then the option would in practice be worthless or merely at the mercy of the landlord. Therefore the parties cannot have intended that the absence of spent breaches should be a condition precedent. Secondly, however, it is natural and sensible that the landlord should require the tenant not to be in breach of any covenant on the operative date and that all outstanding claims for breach of covenant should have been previously satisfied, so that the lease is then effectively clear. The proviso is therefore to be construed as intended to apply to subsisting breaches, with the result that the relevant condition precedent is the absence of any subsisting breach.’
Nicholls LJ: ‘With such a clause the commercial purpose achieved by a condition construed as meaning ‘no subsisting breach’ is readily apparent: before the lease can be ended prematurely all the rent due must have been paid, the property must have been put into a proper state of repair, and the other covenants must have been observed and performed in the sense that all liability in respect of any previous breaches must be at an end. What commercial purpose, in such a case, would be served by the ‘never any breach’ construction of the condition precedent is not so readily apparent.’ and ‘The two alternative constructions have only to be stated for it to be apparent that the ‘never any breach’ construction would mean that in practice the condition would be impossible of fulfilment in almost all cases of leases of buildings containing a full range of repairing and other covenants by a tenant. However diligent or even punctilious a tenant may be in carrying out his obligations under his lease, in such cases there will in practice inevitably be occasions when there will be outstanding some dilapidations which would, strictly, constitute breaches of the repairing or redecorating covenants. Thus the practical consequence of the ‘never any breach’ construction in such cases would be that the break or renewal option would seldom, if ever, be exercisable by a tenant.’ and ‘Even in the case of other leases, where the tenant’s covenants might be less far reaching, this construction would lead to much uncertainty for tenants and their assigns. Break options and renewal options may be valuable but, on this construction, after a few years and particularly if there have been assignments or sub-lettings, the current tenant or a would-be assignee of a lease would be unable in many cases to discover whether or not a break option or a renewal option had already lapsed by reason of a breach of covenant. Indeed, short of a positive answer from a co-operative landlord, it is difficult to see how in this type of situation a tenant or would-be assignee could ever be sure that there had not been a breach, maybe trifling, of one covenant or another in the history of the lease’.
Bingham LJ: ‘Where a tenant wished to take advantage of a break clause, the landlord was not greatly concerned with the history of the tenant’s performance before the break. The worse the tenant’s performance, the readier the landlord might reasonably be to get rid of him. But whatever the tenant’s defaults in the past, the landlord would be very much concerned that at the time of the break the rent should be fully paid (because he could no longer distrain) and the covenants fully observed (so that the property could be re-let or sold without delay or additional expenditure).’
Judges:
Kerr, Nicholls and Bingham LJJ
Citations:
[1988] Ch 493
Jurisdiction:
England and Wales
Citing:
Cited – Grey v Friar 1854
Coleridge J: ‘the covenants must have been strictly kept, or, if broken, must have been satisfied for. So understood, the words import a condition precedent neither impossible nor unreasonable; and where that is clearly the case, the mere difficulty . .
Cited – Simons v Associated Furnishers Ltd 1931
Buildings were let for a term of 17 years. The tenant had the right to terminate the lease after the first five or ten years of the term if it gave notice to that effect and if it ‘shall up to the time of determination . . perform and observe the . .
Cited by:
Cited – Littman and Another v Aspen Oil (Broking) Ltd CA 19-Dec-2005
A lease had been granted with a break clause, which the tenant exercised. The Landlord said it had not complied with its obligations and was not free to exercise that clause. The clause had included the word ‘landlord’ where it should have read . .
Cited – Fitzroy House Epworth Street (No. 1) Ltd and Another v Financial Times Ltd CA 31-Mar-2006
The defendant tenant sought to exercise a break clause in the lease. The landlord said that the notice was deficient because the tenant had failed ‘materially to comply with’ its repairing obligations. The judge found the cost of repairs were . .
Cited – Bairstow Eves (Securities) Ltd v Ripley CA 1992
The lease conferred on the tenant a right to break the leases on notice ‘if the tenant shall perform and observe all the covenants and obligations herein on the tenant’s part contained’. It had failed to repaint the premises during the year before . .
Applied – Trygort (Number 2) Ltd v UK Home Finance Ltd and Another SCS 29-Oct-2008
The landlords claimed that the tenants remained bound under the lease to occupy and use the premises and pay rent. The tenant said that it had exercised a break option. The landlord said that the break was not exercisable because it had otherwise . .
Cited – JBW Group Ltd v Westminster City Council CA 12-Mar-2010
The tenant had applied to the landlord for consent to assign certain leases. The court had declared the right to exercise break clauses in certain leases as lost. The court had found the right to be lost after the assignment of the leases by the . .
Lists of cited by and citing cases may be incomplete.
Landlord and Tenant
Updated: 05 August 2022; Ref: scu.236552
