Summary

A break clause had not been validly exercised by a commercial tenant as the condition precedents to determine the lease had not been strictly complied with; in particular dilapidations and repairs remained outstanding which amounted to material breaches.

Facts

The claimant landlord (L) sought a declaration that a break clause had not been validly exercised by the defendant tenant (T) so that commercial leases continued to run and it was entitled to judgment for outstanding rent. T was the tenant of two warehouse units which were each subject to three-year leases. Under Clause 13.18, T covenanted that it would, at the end of the term, give vacant possession of the premises in the condition required by the lease, would remove fixtures and fittings and leave the premises in a clean and tidy condition. Each lease contained a break clause exercisable by notice. However, cl.19.2 provided that it was a condition precedent to T's right to determine the lease that: (a) it should deliver up vacant possession of the premises on the determination date; (b) rent due would be paid; (c) there would be no material breach of covenant by T at the relevant determination date. T gave notice that it intended to determine each lease. L, however, maintained that the leases remained in effect because T had not given vacant possession on the determination date or complied with the provisions in the lease with regard to dilapidations. It was T's case that although some works of dilapidations remained to be completed at the determination date, the works which remained were not "material" and accordingly condition (c) had been satisfied. It further denied that it failed to give possession, stating that it had given the keys to L's agent. T further stated that in any event, it had relied upon statements made in a schedule of dilapidations served by L which gave it grounds to believe that L would not require strict compliance with conditions (a) and (c).

Held

(1) T had not given vacant possession as it had offered most of the keys but had retained one set to each warehouse so that the contractors could continue to finish the repair works. Furthermore, it had not given L the option of taking possession immediately and leaving the repairs uncompleted. T was therefore in breach of precondition (a) in cl.19.2. The consequence of that breach was that the break clause could not be regarded as having been put into effect and the lease continued (see para.32 of judgment). (2) It was not in dispute that the dilapidations and repairs were not complete; the question was whether those which remained outstanding were "material" in terms of the judgment in Fitzroy House Epworth Street (No1) Ltd v Financial Times Ltd (2006) EWCA Civ 329, (2006) 1 WLR 2207. Whether it was a material breach or not could only be determined by the nature and extent of the disrepair and the effect it would have on the lettability of the premises in accordance with the test in Fitzroy. In accordance with that test, T's failure to complete the dilapidations amounted to breaches which were material. That being the case, there was a breach of pre-condition (c) in cl.19.2 of the lease and T was not entitled to contend that there had been compliance with the pre-conditions which had to be fulfilled before the break could take effect. It followed that the leases of each of the units continued. L was entitled to the relief sought and it was appropriate to assess the rent-free period on the basis of the market rent at the time when the breach was said to have occurred, Fitzroy followed (paras 33, 37, 41).

Judgment for claimant