Avondale Park Limited v Miss Delaney's Nursery Schools Limited

The Court of Appeal dismissed the landlord’s appeal against an interlocutory injunction protecting the tenant’s possession. The court upheld the first-instance judge’s interpretation of clause 9 of the sublease as an automatic contractual termination provision which operated on 14 December 2014 if no deed of variation was produced, rather than a clause creating only a right of election. The judge was also right to conclude that there was a serious issue to be tried whether, after the automatic termination, the tenant’s continued occupation and payment of rent had given rise to an implied periodic tenancy which would attract protection under Part II of the Landlord and Tenant Act 1954. The court further held that estoppel by convention raised triable issues and that whether estoppel could defeat statutory security of tenure under Part II involved difficult questions of law and fact that could not be resolved on an interlocutory application. Finally, the court accepted that the American Cyanamid principles applied and that the balance of convenience and status quo considerations favoured the tenant.

This was an appeal from the decision of Leech J (following an earlier without-notice order by Meade J) to continue an interlocutory injunction preventing Avondale Park Limited from excluding Miss Delaney’s Nursery Schools Limited (MDNS) from the demised premises. MDNS had applied for a declaration as to the status of its tenure and an injunction after Avondale purported to forfeit the sublease by peaceable re-entry on 26 August 2022.

Background and procedural history

• The headlease (held originally by Mellcraft) was due to expire 13 September 2022; the sublease to MDNS ran to 29 August 2022. The sublease required Mellcraft (and subsequently Avondale) to procure a deed of variation to permit use as a nursery by 14 December 2014 (clause 9).
• No deed of variation was produced by the stipulated date, but MDNS took possession on 18 December 2014, paid rent and fitted out the premises, and occupied until August 2022. A deed purportedly dated 2019 was supplied in 2022 but not executed by the superior landlord.
• In August 2022 MDNS withheld rent pending recovery of a security deposit; Avondale served a CRAR notice and then purported to forfeit by re-entry. MDNS sought an injunction and a declaration about its tenure.
• The High Court (Leech J) applied the American Cyanamid principles and continued the injunction; Avondale appealed with permission.

Issues framed by the court

• Whether clause 9 produced automatic termination of the sublease on 14 December 2014 or instead conferred only an option to terminate requiring some election.
• Whether MDNS’s continued occupation and payment of rent after any termination gave rise to an implied periodic tenancy and thus protection under Part II of the Landlord and Tenant Act 1954.
• Whether estoppel by convention prevented MDNS from asserting that the sublease had terminated, and whether estoppel could operate against statutory security of tenure.
• Whether, on an interlocutory application, the judge should have gone beyond the American Cyanamid test and assessed the likely outcome at trial.

Reasoning and holdings

• The Court of Appeal agreed with the judge that clause 9’s language ("will be terminated immediately") denotes an automatic consequence on the happening of the condition; contextual and commercial considerations supported that construction and no implication or redrafting was required to avoid an uncommercial result.
• Once the sublease was treated as having terminated automatically, MDNS’s continued possession and payment of rent raised a triable issue as to an implied periodic tenancy at common law with terms derived from the sublease so far as consistent; if such a tenancy existed it would attract protection under Part II of the 1954 Act.
• Estoppel by convention raised significant questions of fact and law. The court observed that, as a matter of principle, an estoppel cannot easily be permitted to defeat a statutory grant of security of tenure, and Keen v Holland suggested limits to estoppel where it would undermine a statute; but those questions could not be resolved on the interlocutory application before the judge.
• The judge was entitled to apply the American Cyanamid test. Given the practical realities, the absence of evidence that Avondale had in fact begun to carry on the business itself, and the balance of convenience, the continuation of the injunction was justified.

The appeal was dismissed. The Court of Appeal agreed with the first-instance judge that clause 9 operated to terminate the sublease automatically on 14 December 2014 if no deed of variation was produced; that there was a serious issue to be tried whether MDNS’s continued occupation and payment of rent gave rise to an implied periodic tenancy attracting Part II protection; and that issues of estoppel by convention and the interaction with statutory security of tenure raised triable issues which could not be resolved on an interlocutory injunction application. The judge had correctly applied the American Cyanamid principles and the balance of convenience favoured MDNS.

On appeal from the High Court of Justice, Business & Property Courts (Property, Trust & Probate List (ChD)), Leech J [2022] EWHC 2738 (Ch). Permission to appeal was granted by Newey LJ. Earlier interlocutory relief was first granted on a without-notice application by Meade J and continued before Leech J.