If a commercial lease in England & Wales states that it "will be terminated" on the occurrence of a certain event, does the lease automatically end on the occurrence of that event or does it just give a party the right to end it? That was the question recently considered by the Court of Appeal in Avondale Park Ltd v Miss Delaney's Nursery Schools Ltd.
In that case the lease contained a clause that stated that:
"this lease will be terminated immediately if by 14th December 2014 the Landlord does not produce to the Tenant a certified copy of a completed Deed of Variation".
It was argued by the Landlord that the lease had not automatically come to an end on 14 December 2014 despite no Deed of Variation having been provided by that date. This was put in two ways: first that the ordinary meaning of the clause meant that the termination was not automatic; and second that, even if the ordinary meaning of the words did suggest an automatic termination, the lease would only be "voidable" (i.e. giving an option from that point to treat it as null) and not "void" (i.e. null from the start).
Argument one: Interpreting the Clause
The Court considered the clause based on the ordinary meaning of the words. In this regard, the Landlord argued that the phrase "will be terminated" as opposed to "will terminate" meant that one or other party had to do something to invoke the clause, meaning termination was not automatic.
In considering the parties' submissions on interpretation, the Court held that the simple ordinary meaning of the words meant that the lease came automatically to an end on 14th December 2014, if the Landlord had not completed the Deed of Variation. The use of "will be terminated " rather than "may be terminated " and the fact that the termination was "immediate " were important in the Court reaching this view.
Argument two: Void or Voidable?
It is long-established that, in contract (which of course a lease is a species of), if the trigger for an apparent automatic voiding of the lease is a breach by one party or something that is entirely within one party's control, then the lease will not automatically end (even if that is what the lease purports to do). Instead, the non-defaulting party will have the right to choose whether it wishes to terminate. Were that not the case it would allow a party to benefit from its own wrongdoing: potentially ending the lease early by deliberately breach.
The landlord sought to rely on previous case law, involving a lease of a Mine which provided that the lease would be "void" if the tenant stopped mining for two years. It was held that the word “void” meant "voidable at the option of the landlord", with the tenant’s breach not automatically bringing the lease to an end or entitling the tenant to bring it to an end. That prevented the tenant from being able to walk away from the lease by simply ceasing to carry out mining activities. On this basis it was argued an implied term ought to be read into the lease that the landlord would need to use reasonable endeavours to enter into the Deed of Variation and its failure to do so was a breach of that term. It was therefore the tenant alone who had the option to determine the lease when that was not done.
The distinguishing feature here though was that the clause was not for the benefit of one party alone, and that compliance with the condition was not within either party's sole control. There was therefore no basis for an implied term and it was rejected by the Court.
Take-away points
Whilst the Court here gave effect to the ordinary meaning of the words in very simple terms, the case is a useful reminder that that won't always be the case. Other issues, for example estoppel (the principle restricting a party from asserting a contrary position to that which had previously been implied), which often comes into play in claims on lease interpretation and rectification, were also explored in the judgment.
The case also serves as a practical prompt of the issues that can arise if a tenant remains in occupation after the expiry of a lease that is contracted out of the Landlord and Tenant Act 1954. Landlords should bear in mind that a provision which purports to automatically void a lease upon a tenant's breach is likely to be a disguised forfeiture clause and so subject to the usual forfeiture restrictions.
If you are a commercial landlord or tenant seeking to terminate your lease or you have any queries about how these issues may impact you or your business, please do not hesitate to get in touch with the Real Estate Disputes team or your usual Brodies' contact.
