Summary

The correct interpretation of a notice clause, in an agreement for the grant of underleases of premises, that either party could terminate the parties' obligations by giving three months' notice was that the service of the notice would terminate the obligations with immediate effect.

Facts

The appellant seller (N) appealed against a decision ((2009) EWHC 497 (Ch), (2009) 2 All ER (Comm) 470) refusing its claim for specific performance of an agreement for the grant to the respondent buyer (T) of underleases of premises. N had purchased a business subject to an agreement that the leasehold of the premises would be assigned to it. Under a business purchase agreement, T purchased the business from N, and N agreed to grant underleases of the property to T when the assignment of the lease had been completed and the landlord had given consent to the grant of the underleases. The agreement stated that if N had not obtained the relevant consents to the transfers within one year then either party could terminate the parties' obligations under the agreement by three months' notice, in which event T would vacate the premises at the end of the notice period. Pending the relevant consents, both T and N were granted licences to occupy the premises. Over a year later, T served N a notice to terminate the agreement. N finally obtained the relevant consents and required T to complete the underleases in accordance with the agreement. T refused. Rejecting N's claim for specific performance, the court held that T had served a valid notice to terminate the parties' obligations pursuant to the agreement, and that an obligation to complete the underleases could not arise after that notice was served. N submitted that the correct interpretation of the agreement was that the parties' obligations were not terminated until the expiry of the notice, and that the service of the notice did not extinguish the right to sue for breaches of obligation occurring before or during the notice period but that remained unperformed at the expiry of the notice period.

Held

The immediate effect of the notice was that there was no longer any obligation on N to obtain the relevant consents, or on T to take underleases of the premises. It would not be normal or reasonable to expect that, in the absence of express provisions in the agreement or a fresh agreement between the parties, that a notice terminating the parties' obligations, once given, could be unilaterally revoked or reversed or that it had no legal effect on the parties' obligations before the notice had expired. The practical consequences of N's construction was that right down to the very last moment of the notice period neither side could be sure whether T would have to vacate the premises or would have to go on paying the licence fee, or be obliged to take up underleases. It would be surprising if the uncertainties of such an uncommercial arrangement accurately reflected the parties' commercial intentions.

Appeal dismissed