Haigh Hall, a stately home, belongs to Wigan Borough Council and was let to a tenant for 199 years in return for a payment of £400,000 plus VAT. But the lease was excluded from the Landlord and Tenant Act 1954 and contained a break clause that was exercisable “at any time” if the hall had not been converted into a four-star boutique hotel by 23 May 2018.
That milestone came and went – and the council served a break notice sixteen months later, thereby triggering the litigation in Wigan Borough Council v Scullindale Global Ltd [2021] EWHC 779 (Ch). The tenant claimed that the lease was subject to an implied term requiring the council to serve its break notice within a reasonable time, since an entitlement to terminate at any time during the remainder of the term would convert the lease into something akin to a tenancy at will. Alternatively, was there an implied term that the council could terminate only while the tenant was in default?
The court refused to imply a term on the grounds of “business efficacy”, because the lease worked perfectly well as it stood. But the judge accepted that it was “necessary” to imply a temporal limitation on the service of a break notice to reflect the reasonable expectations of the parties. Indeed, such a limitation was so obvious that it went without saying.
However, there was a world of difference between being allowed to do something “at any time” and being allowed to do it within “any reasonable time”. Consequently, the judge decided that the council’s entitlement to serve a break notice was limited to the period while the tenant was in default. Furthermore, the refurbishment, albeit splendid, was still unfinished when the break notice was served.
The judge rejected the tenant’s argument that the council had waived its right to terminate the lease. It would have had to have indicated its intention to do so clearly and unequivocally – and, until it exercised its break right, it was entitled to enforce the tenant’s covenants and was obliged to comply with its own obligations as the landlord: BDW Trading Ltd v JM Rowe (Investments) Ltd [2011] EWCA Civ 548. Furthermore, it was difficult to see how a delay in exercising a break right could be inconsistent with a right to terminate that was exercisable at any time while the tenant was in default.
Nor was the council estopped from exercising its break right. The tenant had spent a substantial sum on the hall since June 2018. But it had been under a legal obligation to complete the work – and would benefit from an increased termination payment as a result, because the lease required the council to compensate the tenant if it were to exercise its break right.
However, the premises had fallen in value by more than £1m since the lease was terminated, thanks to the pandemic. So the council was liable to pay the tenant considerably more than the hall was now worth – and was not entitled to mesne profits even though the tenant had remained in occupation after the break date, because the council had suffered no financial loss, and the tenant had not profited from its use of the hall, as a result of coronavirus. Consequently, the judge urged the parties to reach a sensible accommodation that would enable the tenant to continue to operate the hotel going forwards.
Allyson Colby is a property law consultant
