In the October 2009 edition of property update, we considered the case of Norwich Union Life & Pensions Ltd v Linpac Mouldings Ltd. The High Court ruled that a break clause which was personal to a particular tenant could not be exercised after the lease had been assigned by that tenant, even if the lease was subsequently re-vested in it.
The tenant in question, Linpac Mouldings Ltd, appealed to the Court of Appeal. The appeal was confined to the question of whether Linpac could have operated the break clause after it had assigned the lease, but before it re-acquired it.
The Court of Appeal considered the wording of the break rights, which were contained in two different leases, separately. The break clause in the 2005 lease contained a provision which stated: "In this clause ... references to "the Tenant" mean Linpac Mouldings Ltd as original tenant...". The other break clause was contained in a Licence to Assign a 1972 lease, and read: "if the Assignee (meaning Linpac Mouldings Ltd only) shall desire to determine the Lease...".
Linpac argued that it remained the original tenant under the 2005 lease even after it had parted with it, and that therefore it was still entitled to exercise the break right under that lease. It pointed out that the phrase "original tenant" is commonly used to mean the person in whom a lease was first vested. However, the Court of Appeal disagreed. It concurred with the High Court that "provision for a former tenant to bring a lease to an end at a time when the lease is not vested in them would be extraordinary, even if technically possible". The words "Linpac Mouldings Ltd as original tenant" in the 2005 lease meant that Linpac had to exercise the break option in its capacity as the tenant.
Similarly, the break clause relating to the 1972 lease was easily capable of being read consistently with the "usual and orthodox approach" that a break clause is an incident of the relationship of landlord and tenant. The words "the Assignee (meaning Linpac Mouldings Ltd only)" reflected an intention to limit – rather than expand – what would otherwise be the conventional position that a tenant's right to break is exercisable only by the tenant for the time being and, on assignment, passes to the assignee.
The leases in this case were not due to expire until 2070. Unusually for long leases, they were subject to seven-yearly rent reviews to a full market rent. It is therefore no surprise that Linpac thought that the point was worth arguing. Unfortunately, it has now been unsuccessful in both the High Court and the Court of Appeal. It now faces the prospect of remaining liable under the leases for another sixty years.
Things to consider
Although as noted previously this decision will be welcome to landlords and tenants alike, the Court of Appeal did make it plain that it was simply carrying out an exercise into the proper interpretation of the particular documents before it. As such, other clauses in other documents may be interpreted differently. The court will always look at a document against the factual background at the time it was entered into. The Court of Appeal was clear that it is possible that a personal break right could be drafted so as to be exercisable after the lease had been assigned. However, it seems that very clear drafting would be needed to achieve this result.