Into Nominee One Limited & Anor v Study Group UK Limited & Anor

A lease may be frustrated only where a supervening event, without default by either party, makes performance radically different from the bargain originally made. The doctrine is exceptional and does not apply merely because premises become unsafe, unusable, expensive or difficult to repair.

In assessing frustration, the court considers the lease, its contractual allocation of risk, the surrounding circumstances, the parties’ objectively ascertainable expectations and assumptions, and the nature and consequences of the supervening event. A long lease, repairing obligations, insurance provisions and exclusions of fitness for purpose may show that the relevant risk was allocated by contract. Post-Grenfell legislation did not frustrate the lease where the premises were already required to be safe and remedial works were already necessary.

The claimants, freehold owners and landlords of Voyager House, sought summary judgment for rent under a 25-year lease granted to Study Group UK Limited, guaranteed by Daily Mail and General Trust plc. Voyager House was a residential training school comprising academic and residential blocks.

Study Group relied on frustration. It alleged that extensive latent fire-safety and cladding defects made the premises unsafe and unavailable for educational use until after the lease expiry. Alternatively, it relied on post-Grenfell legislation. DMGT sought consequential indemnity and contribution relief if judgment were entered against it.

The central questions were whether the lease had been frustrated by the defects or by legislative changes, and whether those issues could properly be determined on summary judgment.

1. Summary judgment principles. The court applied the principles in Easyair Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch), as approved in A C Ward & Son Ltd v Catlin (Five) Ltd [2009] EWCA Civ 1098. The court must decide whether the defence has a realistic prospect of success, avoid a mini-trial, and consider evidence reasonably expected to be available at trial. It may determine a short point of law or construction where the necessary evidence is available. Any unresolved factual issue relevant to that determination is assumed in favour of the party resisting summary judgment.
2. Frustration. The governing test is whether, without default by either party, a supervening event has made performance radically different from that undertaken. Mere hardship, expense, delay or onerousness is insufficient. Frustration is narrow, operates automatically and cannot ordinarily be invoked where the event was foreseen or the contract allocated the relevant risk.
3. Application to leases. Following National Carriers Ltd v Panalpina (Northern) Ltd [1981] A.C. 675, a lease is capable in principle of frustration, although successful cases are likely to be rare. Relevant considerations include the length of the unexpired term, restrictions on use, the proportion of the term affected, and the contractual treatment of the relevant risk.
4. Contractual allocation of risk. The Agreement for Lease contemplated defects, a defects liability period and collateral warranties. The Lease imposed a wide repairing covenant, including an obligation to rebuild the whole premises, subject to the express treatment of insured risks. It also contained no warranty that the premises were suitable for the tenant’s purposes. Those provisions showed that the parties had allocated the risk of defects and remedial works. They prevented Study Group from establishing an arguable common understanding that the premises would be free from life-safety defects.
5. Common purpose. The intended educational use did not establish a separate common purpose beyond the purpose identified from the Lease. The parties’ expectations as to a new and compliant building could not overcome the express contractual allocation of risk. The Lease was therefore not discharged by frustration.
6. Legislation. The pleaded statutory changes did not create a radically changed legal relationship or cause a new inability to use the premises. Remedial works were already necessary under the pre-existing legal requirements. The alternative frustration case accordingly failed.
7. The application could properly be determined on summary judgment. Judgment was entered in principle for the landlords, although the amount remained to be determined because the pleaded claim and the sum sought differed. DMGT’s consequential claim was accepted in principle if liability to the landlords was established.