Dreams Ltd v Pavilion Property Trustees Ltd & Anor

In construing an agreement for surrender of a lease, the phrase “any money due on completion” ordinarily refers to crystallised contractual payment obligations, such as rent and service charges. It does not ordinarily include an unresolved claim for unliquidated damages for disrepair. A surrender agreement may nevertheless make delivery of vacant possession a condition precedent to completion. Where the agreement is structured as a conveyance of an interest in land, and vacant possession is part of the bargain, the general law of property transactions may make the seller’s delivery of possession a direct quid pro quo for the buyer’s obligation to complete. The court must construe the agreement in its contractual and legal context and must not rewrite it merely because the result appears surprising or commercially disadvantageous.

The claimant was tenant under a lease of retail premises granted by the defendants. The parties later entered into an Agreement for Surrender, under which either side could require an early surrender. The agreement required payment of money due on completion, provided that the surrender was with vacant possession, and incorporated conveyancing machinery treating the defendants as buyers and the claimant as seller.

The claimant served notice requiring surrender. The defendants refused to complete, asserting that the claimant had to pay damages claimed in a schedule of dilapidations and had failed to give vacant possession because a mezzanine and lift remained in the premises. The court was asked to determine two preliminary issues: whether payment of dilapidation damages was a condition of completion, and whether vacant possession was a condition precedent to the defendants’ obligation to accept the surrender.

1. First preliminary issue — decided for the claimant. Clause 6.2 made completion conditional on payment of “any money due on completion”. In its contractual context, that language naturally referred to crystallised debts or payment obligations, including rent and service charges. It did not ordinarily encompass an unresolved claim for unliquidated damages for breach of repairing covenants. The agreement required sums due to be identifiable and paid by completion. Dilapidation claims commonly require schedules, counter-schedules, valuation evidence and, where necessary, adjudication. The Agreement for Surrender contained no mechanism for determining such a claim before completion. The practical workability of the agreement therefore supported the claimant’s construction.
2. The references to “monies due” in clauses 6.2 and 12 were treated as addressing the same subject: contractual payment obligations. The court considered President of India v Lips Maritime Corporation [1988] AC 395 and Re Collbran [1956] 1 Ch 250 supportive by analogy. The contrary authorities did not establish that “sums due” ordinarily included unresolved damages claims. The commercial consequences and the existence of a broad release did not justify rewriting the agreement.
3. Second preliminary issue — decided for the defendants. Clause 8 stated that the surrender was with vacant possession. Although it did not expressly call that obligation a condition, the agreement was deliberately structured as a contract for the conveyance of an estate in land, with standard conveyancing conditions and completion machinery. The general law therefore formed part of the contractual context.
4. A buyer who has contracted to obtain vacant possession may generally refuse to complete until vacant possession is delivered. The obligation to give vacant possession was a direct quid pro quo for the defendants’ acceptance of the surrender and release of liabilities under the Lease. The court followed the reasoning in Lambeth LBC v Lexadon and Cook v Taylor. Authorities concerning equitable specific performance where the deficiency was trivial did not alter that conclusion. The preliminary issues were accordingly determined respectively for the claimant and the defendants. The parties were invited to agree the consequential order, including costs.