Equinox Industrial (Gp2) Ltd & Anor v Sketchley Ltd

A break right expressed to be personal to the original tenant, and excluding successors in title and assigns, is ordinarily lost when the original tenant assigns the lease. A later re-assignment does not revive the right unless the contractual language clearly produces that result. Construction depends on the precise wording and context of the lease, read in light of its commercial purpose. Commercial common sense supported finality: the original tenant could retain the lease and its personal right, or assign the lease and realise its value while giving up that right.

The claimants, as landlords, sought a declaration that Sketchley Ltd’s notice exercising a contractual break clause was invalid. Sketchley Ltd counterclaimed for a declaration that the notice was valid.

The lease granted the break right to Sketchley plc only and expressly excluded its successors in title and assigns. Sketchley plc assigned the lease, after which the lease was re-assigned to the same corporate entity, then called Sketchley Ltd. The central issue was whether the re-assignment revived the personal break right. The court determined the issue on the claimants’ application for summary judgment and Sketchley Ltd’s application for permission to counterclaim.

1. Construction of the break clause. The court construed the lease as a whole. Where contractual language is capable of two meanings, the meaning more consistent with the likely commercial purpose will normally be preferred. Nevertheless, the exact language and contractual context remain decisive. Decisions concerning differently worded leases may assist where they address the same point and are carefully reasoned.
2. Effect of assignment. Clause 8.3 made the break right personal to Sketchley plc and expressly excluded successors in title and assigns. The right was therefore available only to Sketchley plc in its capacity as original lessee. It ended when the lease was assigned and did not remain in a suspended state.
3. No revival on re-assignment. A subsequent re-assignment could not revive the extinguished right. The commercial purpose was intelligible: the original tenant could retain the lease and enjoy the special right, or assign the lease and realise its value while accepting that the right would no longer operate. Revival would create continuing uncertainty for the landlord and purchasers of the reversion.
4. The possibility of a vesting order under Insolvency Act 1986, section 181(2), did not alter the conclusion. Any order was discretionary, and the landlord could object unless the original tenant undertook not to exercise the break right.
5. The court made the declarations sought by the claimants. Sketchley Ltd’s notice was invalid.

First-instance decision. No earlier decision in the proceedings was stated.