Avondale Park Limited v Miss Delaney's Nursery Schools Limited

A contractual provision stipulating that a lease will terminate immediately upon a future event ordinarily produces automatic termination where its language, purpose and commercial context support that construction. The principle preventing a party from taking advantage of its own wrong is a principle of contractual interpretation. It does not govern where neither party controls the event and the clause protects both parties.

Possession and payment of yearly rent under a terminated or void lease may create a periodic tenancy on compatible terms. If that tenancy has statutory security of tenure, there is a strong argument that estoppel by convention cannot defeat the statutory protection. On an interim injunction application, the court should avoid finally determining fact-sensitive issues where fuller investigation could materially affect the result.

Avondale Park Limited was the landlord under a fixed-term sublease granted to Miss Delaney's Nursery Schools Limited. Clause 9 stipulated that the sublease would be terminated immediately if the landlord failed to produce a completed variation of the headlease by 14 December 2014. No completed variation was produced, but the nursery entered possession, paid rent and traded from the property until Avondale purported to forfeit in August 2022.

Leech J continued an interim injunction restoring and protecting the nursery's possession. He found serious issues concerning automatic termination, the creation of a periodic tenancy, waiver of forfeiture and estoppel by convention: [2022] EWHC 2738 (Ch).

Avondale appealed, contending that clause 9 required an election, that its estoppel case admitted no serious issue for trial, and that the judge should have assessed the nursery's likelihood of success because the injunction would effectively determine the dispute.

1. Appeal dismissed. Clause 9 automatically terminated the sublease on 14 December 2014. Its imperative word “will”, the requirement for immediate termination, the commercial protection afforded to both parties and the extensive implications required by Avondale's proposed construction all supported that conclusion.

2. The rule preventing a party from taking advantage of its own wrong is a principle of contractual interpretation. It may justify construing an apparently automatic termination provision as conferring an option on the innocent party. It did not apply here. The clause benefited both parties, the nursery could not procure the variation, and Avondale could not compel its superior landlord to agree to it. A lease may at common law determine automatically upon a specified event, consistently with section 205 of the Law of Property Act 1925.

3. There was a serious issue whether continued possession and payment and acceptance of rent created a periodic tenancy on the compatible terms of the former sublease. Because the premises were occupied for a business, such a tenancy would attract Part II protection under the Landlord and Tenant Act 1954.

4. The authoritative requirements for estoppel by convention include an expressly shared assumption, an assumption of responsibility, actual reliance connected with subsequent mutual dealings, and sufficient detriment or benefit to make departure unconscionable. Avondale's evidence did not establish those matters so decisively that the nursery's answer was unarguable.

5. There was also a strong argument that estoppel could not override statutory security of tenure. The court must first determine whether an actual protected tenancy exists. Section 38(1) of the 1954 Act prohibits contracting out, and an estoppel cannot necessarily achieve indirectly what an agreement could not achieve directly. The precise application of that principle remained fit for trial.

6. The judge was entitled to apply the established interim-injunction principles. Where an injunction may effectively resolve the dispute, the court must give full weight to practical realities. Here factual investigation at trial could materially alter the evidence. The unchallenged balance of convenience clearly favoured the nursery, while Avondale's proposed business occupation and resulting detriment were at best doubtful.

• Court of Appeal (Civil Division): Dismissed Avondale's appeal and upheld the continuation of the interim injunction: [2023] EWCA Civ 641 .

• High Court, Chancery Division: Leech J continued the injunction. He held that clause 9 had automatically terminated the sublease and that there were serious issues concerning a periodic tenancy, waiver and estoppel by convention: [2022] EWHC 2738 (Ch).