Sirhowy Investments Ltd v Henderson & Anor

A contractual break clause requiring tenants to use all reasonable endeavours to secure planning consent does not necessarily require them to accept a scheme that substantially reduces the usefulness of the leased premises. A requirement to have observed and performed lease covenants focuses on the position when the break is exercised and takes effect. A purely historic breach with no continuing consequences will not ordinarily prevent exercise of the break. However, a subsisting breach of a repairing covenant may do so. Repairs must leave the premises consistent with the existing standard; patching substantial fencing defects with sheeting was insufficient.

The claimant landlord sought a declaration and damages after the defendants, who operated a second-hand car business from leased premises, purported to terminate the lease under a planning-related break clause. The local planning authority had required a vehicle turning area and had threatened proceedings for non-compliance with a breach of condition notice.

The court considered whether the authority had objected to the permitted use, whether the defendants had used all reasonable endeavours to secure planning consent, and whether they had paid the rent and observed and performed the lease covenants. The central issue was whether the notice validly determined the lease.

1. Planning objection and reasonable endeavours. The Council’s requirement that the defendants cease using the premises for motor-vehicle sales amounted to an objection to the use permitted by the lease. The obligation to use all reasonable endeavours to secure planning consent did not require the defendants to accept a turning area within the leased land where that would substantially reduce the usefulness of a significant part of the site. The defendants could not reasonably be expected to agree to such an arrangement.
2. Historic breaches. The requirement that the tenants had paid the rent and observed and performed the covenants was directed to the position when the lease was to determine. The tenants were required to be up to date with rent at the relevant time. A past delay in paying rent, or a purely historic breach of covenant without continuing consequences, would not ordinarily prevent exercise of the break clause. The alleged dog, staff-parking and workshop-planning breaches did not therefore defeat the notice.
3. Repairing covenant. The defendants were in breach of their obligation to keep the fencing in good and substantial repair. Attaching sheeting to holes was not sufficient. The lease required repairs consistent with the remainder of the fencing, rather than a merely functional or temporary covering. Acceptance of rent did not establish that the landlord had consented to the breach.
4. Disposition. Because the defendants had not observed and performed all their covenants when the notice was served or when it would have expired, the notice did not take effect and the lease continued. Judgment was given for Sirhowy. By agreement on quantum, the defendants were ordered to pay £70,000 damages, with interest and costs.