It is not uncommon to see in leases an obligation to manage the property “in accordance with the principles of good estate management”, which seems to mean little more than “well”. Certainly no such “principles” are published anywhere. However, an obligation of this sort was enforced by an injunction in Capita Trust Co Ltd v Chatham Marine Developments Ltd .
TWISTING THE LANDLORD’S ARM
Chatham Marine held the head-lease of a shopping centre; Capita Trust was the landlord. Unusually, the lease contained a break clause, exercisable by either party – this would have the effect of terminating the underleases of all of the occupational tenants (Pennell v Payne ). The earliest break date was in 2008.
With the centre trading poorly, this represented a potential disaster for Capita Trust, and it was a godsend when the possibility of securing Marks & Spencer as an ‘anchor tenant’ came up.
For Chatham Marine, this was a different sort of opportunity: they refused to grant an underlease to M&S unless Capita Trust paid them £2.6m for giving up the break clause.
Chatham Marine had obligations in the head-lease as follows:
- To use reasonable endeavours to secure standard leases for all units.
- To use reasonable endeavours to keep all units underlet.
- To manage the premises in accordance with the principles of good estate management.
The proposed underlease to M&S was not on standard terms, and Chatham Marine argued that to force them to sign it would put them in breach of covenant.
The court concluded that the letting obligation and the good estate management obligation trumped the standard terms obligation.
It could not be correct that the head-lease required Chatham Marine to keep the development empty if they could not agree a standard lease with anyone.
TO INJUNCT OR NOT TO INJUNCT?
The “good estate management” obligation is vague and broad, and precisely the sort of obligation which will generally not be enforced by injunction: Co-operative Insurance Society Ltd v Argyll Stores Ltd . However, rather than seek an order in broad terms, Capita Trust was asking the court only to compel performance of a single act. The judge’s view was that an injunction could appropriately be granted on that basis.
Does this mean that good estate management obligations suddenly have teeth?
- The letting obligation clearly counted for more with the court here.
- The factual background was unpromising for Chatham Marine. They had negotiated the terms of the underlease, recognised its importance to the centre, and were only refusing to sign it in order to procure a £2.6m payment.
- Failure to grant the underlease was unarguably a breach of covenant.
There was no need, therefore, to look too closely into the meaning of “the principles of good estate management”, and what a court might decide the expression means in any future case remains a matter for conjecture.
Perhaps a breach of a “good estate management” obligation is like an elephant: you may not be able to define it, but you know one when you see one.