William Page & Company Ltd v BNP Paribas Securities Services Custody Bank Ltd & Anor

An option in a lease must be strictly construed, but strict construction does not require the court to disregard commercial purpose or common sense. Unless clear words require otherwise, obligations concerning rent and performance of tenant covenants may be performed through an agent or another group company. A licence permitting occupation of the whole premises is not prohibited where the lease distinguishes that arrangement from underletting and expressly regulates underletting. On the facts, the option was validly exercised. The judge also considered, obiter, waiver and estoppel principles, including the need for an unequivocal election and the relevance of substantial prejudice to unconscionability.

The claimant sought enforcement of an option in a 1994 lease of commercial premises. The option entitled the claimant to a further ten-year lease if it gave timely notice, remained the tenant, paid the reserved rent and reasonably substantially performed its covenants.

The claimant was a dormant company. A related company occupied the premises and paid or funded the rent. The defendants, successors to the original landlord, argued that these facts meant the option conditions had not been satisfied. The claimant also relied alternatively on waiver, waiver by estoppel and estoppel by convention. The central issues were the proper construction of the lease and option, and whether performance through the related company was sufficient.

1. Construction of the user covenant. The relevant covenant prohibited parting with possession or occupation of part of the premises, subject to a small-area exception. Read with the separate provision governing underletting of the whole, it did not prohibit granting an occupational licence over the whole premises. The related company therefore occupied as licensee and its occupation was not a breach of covenant.
2. Construction of the option conditions. Options must generally be followed to the letter, but strict construction does not exclude common sense, commercial purpose or the factual matrix. The lease showed that the option was personal to the claimant in the conditions dealing with identity and notice, but contained no equivalent requirement that the claimant itself perform the rent and covenant obligations. Those obligations could properly be performed through an agent or independent contractor. Rent paid and covenants performed through the related company therefore counted as performance by the claimant.
3. The option conditions had been fulfilled and the option had been validly exercised. The defendants were required to grant the further lease in the terms of the prayer. Costs and the precise terms of the order were reserved for further hearing.
4. Supplementary findings. These issues were unnecessary to the result. Waiver by election would have failed because there was no unequivocal election, and negotiations or delay did not amount to such an election. Mere silence, without a duty to speak, did not constitute a representation for waiver by estoppel.
5. Estoppel by convention would nevertheless have succeeded. The parties shared an assumption that the claimant would not trade from the premises and that a related company would occupy and fund the rent. Resiling from that assumption would have been unconscionable because the prejudice to the claimant would have been substantial.