Linpac Mouldings Ltd & Ors v Aviva Life and Pensions UK Ltd

Commercial break clauses are ordinarily incidents of the landlord and tenant relationship, so their benefit and burden pass with the term or reversion. A former tenant’s right to terminate after assignment is extraordinary and requires clear, unambiguous language. Construction must reflect the commercial purpose, context and factual setting, including the practical difficulties of obtaining vacant possession and the security of tenure under Part II of the Landlord and Tenant Act 1954. Words defining an original tenant do not, without more, preserve a break right after assignment. Where linked leases must be terminated simultaneously, failure to satisfy the break conditions in one lease prevents termination of the others.

Linpac acquired two long commercial leases dated 4 February 1972 and a further lease dated 18 February 2005. The leases were assigned with consent to an associated company, which later became Ecomold and entered administration. Ecomold sought consent to reassign the leases to Linpac. Consent was refused for the 1972 leases but granted conditionally for the 2005 lease. Despite the refusal, the leases were transferred and Linpac served notices purporting to exercise the break rights.

Mr Justice Lewison declared the refusal reasonable and held that the break rights were unavailable while Linpac was not the tenant, and did not revive on reacquisition. Linpac appealed only on whether it could exercise the rights after assignment and before reacquisition.

The Court of Appeal dismissed the appeal. Etherton LJ gave the leading judgment and Dyson LJ agreed. Sedley LJ agreed with the result, although with misgivings and a separate caveat.

1. The contractual provisions had to be construed according to the parties’ intention, assessed in the light of the commercial purpose, context and factual setting. Ordinarily, a right to end a tenancy by notice is an incident of the landlord and tenant relationship. The benefit and burden of a break clause ordinarily pass with the reversion or the term.
2. A contractual right enabling a former tenant to determine a lease after assignment would be extraordinary. The practical difficulties of obtaining vacant possession from a protected business tenant, the landlord’s interests, the availability of subletting, and the security of tenure under Part II of the Landlord and Tenant Act 1954 supported requiring clear and unambiguous language. Courts should also avoid radically different constructions based on slight differences in wording.
3. Clause 6.5 of the 2005 lease limited the right to Linpac as original tenant, or an associated company, while it remained the tenant. “Original tenant” was not a term of art preserving a right after assignment. Linpac therefore could not operate clause 6 after assigning the lease.
4. Since the 2005 lease had to be determined simultaneously with the 1972 leases, Linpac could not satisfy the amended proviso (iii) to clause 5 of the 1986 licence. That was sufficient to dispose of the appeal.
5. Etherton LJ nevertheless held, in alternative reasoning, that the words “if the Assignee (meaning Linpac Mouldings Ltd only)” did not clearly confer a right on Linpac after assignment. The clause was consistent with the orthodox position and was not materially distinguishable from Max Factor Limited v Wesleyan Assurance Society (1996) 74 P&CR 8. Sedley LJ added that construction must remain focused on the document before the court, rather than being controlled by the construction of another document, but accepted the result.

1. Court of Appeal (Civil Division): dismissed Linpac’s appeal against the declarations made below. [2010] EWCA Civ 395.
2. Chancery Division: Mr Justice Lewison, by order dated 21 May 2009, declared that consent had been reasonably withheld and that Linpac’s break rights were unavailable after assignment and did not revive on reacquisition.