Ref. Sirhowy Investments Limited v Henderson & Knight (2014)
The case provides a particularly stark warning to tenants considering agreeing a lease which contains onerous break clause conditions.
In this instance, Mr Henderson and Miss Knight, the tenants, rented land in Pontilanfraith in Wales from Sirhowy for their car sales and repair business. The lease was for 10 years but, at the insistence of the tenants, it contained a right to break the lease on giving not less than 3 months notice if the local Planning Authority objected to such use.
The right to break was under the condition that the tenants used all reasonable endeavours to obtain consent for the use and having complied with all the covenants in the lease as to payment of rent, repair and otherwise.
Unfortunately, the local Planning Authority feared the impact of large car transporters delivery and collection of vehicles on the public road. In 2010, it served notice on the tenants to enforce the 1999 planning consent which required the provision of a turning area for car transporters. The application was not declined, therefore, but a condition was attached.
The tenants, in turn, gave notice to Sirhowy to terminate the lease but Sirhowy claimed the notice was ineffective on 3 grounds as follows:-
- That the local Planning Authority had not objected to the use but required conditions relating to such use to be complied with.
- That the tenants had not used all reasonable endeavours to satisfy the condition as they could have provided the turning area within their site.
- That all the lease covenants had not been complied with.
When it came to trial in 2014, both parties had agreed that, if the break clause was ineffective, the tenants would pay damages of £70,000 with interest and costs.
On the first two points, the Court showed sympathy for the tenants’ situation. It was stated that there had been a clear objection to their use of the land, which was sufficient to satisfy a ‘Local Planning Authority objection’, and that there had never been an intention for the tenants to have to use their land to provide a turning area, which would have caused operational difficulties.
Only the third point put forward by Sirhowy remained therefore and a variety of objections were raised by the Landlord, including claims of a breach under ‘keeping livestock on the premises’– by which they were referring to the tenants’ dog.
Ultimately, the only credible breach which could be claimed was of failing to keep the premises in good and substantial repair at lease expiry. Though claims regarding external painting, decoration and lights were all thrown out, the case eventually rested on the condition of the fencing; which had been patched with sheeting after a break in. Although the tenants argued this was sufficient repair, or this had happened before the lease was entered into, the Court held this was a breach of the lease and that it was a subsisting breach as Sirhowy had never consented to such form of repair or to the breach.
For the tenants, the end result was that the break clause notice was ineffective. For the sake of a patched, rather than fixed, fence, the tenants became liable for £70,000 in damages, as well as interest and costs. A heavy price to pay for the sake of a few metres of fence.
For tenants across the country, the case serves as a two-fold warning. Firstly, all tenants should be careful when negotiating break clauses. Onerous conditions can make ‘absolute compliance’ extremely difficult to achieve and even a small breach will lead to disappointment if it comes to dispute. For tenants already operating under such a clause, thought must always be had to its particular restrictions and, when faced with repair situations as was seen in this case, the more comprehensive option may be a sensible investment.