Sirhowy Investments Ltd v Henderson & Knight

 

The Message

Tenants should avoid conditional break clauses if they can.

The Case

Once again, the onerous nature of break clause conditions has cost a tenant dearly (Sirhowy Investments Limited v Henderson and Knight (30 October 2014)).

In 2004, Mr Henderson and Miss Knight, the tenants, rented land in Pontilanfraith in Wales from Sirhowy for their car sales and repair business. The lease was for 10 years but, at the insistence of the tenants, it contained a right to break the lease on giving not less than 3 months notice if the local Planning Authority objected to such use.

The right to break was conditional on the tenants using all reasonable endeavours to obtain consent for the use and having complied with all the covenants in the lease as to payment of rent and otherwise.

The local Planning Authority was not happy with the tenants using the public road for the parking of large car transporters delivery and collection of vehicles. In 2010, it served notice on the tenants to enforce the 1999 planning consent which required the provision of a turning area for car transporters.

The tenants, in turn, gave notice to Sirhowy to terminate the lease but Sirhowy claimed the notice was ineffective on 3 grounds as follows:

  1. That the local Planning Authority had not objected to the use but required conditions relating to such use to be complied with.
  2. That the tenants had not used all reasonable endeavours to satisfy the condition as they could have provided the turning area within their site.
  3. That all the lease covenants had not been complied with.

By the time of the trial some 4 years later, the parties had agreed that, if the break was ineffective, the tenants would pay damages of £70,000 with interest and costs.

The Court was very sympathetic to the tenants’ case. It found for them on the first 2 grounds above as there had been a clear objection to their use of the land and this was all that was required and it had never been intended that the tenants should have to use their own land to provide a turning / delivery area (as this would cause it operational difficulties).

This, therefore, left the requirement to have complied with the lease covenants and, as is so often the case, this proved to be an almost impossible condition to satisfy. Sirhowy, as all landlords do, sought to rely on as many failings as they could reasonably seek to do so and these included keeping livestock on the premises as the tenants kept a dog there.

The Court held that keeping a dog did not equate to keeping livestock and that Sirhowy could not rely on certain historic breaches as the break clause was intended to focus on the position at lease expiry and not on spent or insignificant past breaches.

In the end, the status of the lease came down to whether the premises were in good and substantial repair at lease expiry? This is a requirement that no well advised tenant would ever be advised to accept nowadays as it is apparent that absolute compliance (as required by any break clause) is so difficult to achieve. It should, at the very least, be qualified so that only substantial or material or reasonable compliance is needed.

Having rejected Sirhowy’s case that there were breaches re external painting and decoration and some lights had been removed, the whole outcome of the case came down to the condition of the fencing. It had been patched with sheeting after a break in. Although the tenants argued this was sufficient repair, or this had happened before the lease was entered into, the Court held this was a breach of the lease and that it was a subsisting breach as Sirhowy had never consented to such form of repair or to the breach.

The Court was conscious that, in some respects, the tenants had improved the premises but this could not negate or reduce their repairing liabilities or counter any breach.

Accordingly, the break clause was ineffective simply because of a patched, rather than repaired, fence and the tenants were liable for £70,000 interest and costs. The costs liability will, no doubt, be even more than the £70,000 damages.

The lesson, as ever, to be learnt is not to agree to any break conditions at all if possible or, at least, make sure that any such conditions are not too difficult to comply with and only are relevant so far as they materially effect the premises at lease expiry. Why should, for example, a breach of repair matter if the landlord would redevelop or a new tenant refurbish the premises?