Whose Lease is it anyway? – something to bear in mind when considering an investment
16 / 04 / 2020
In the recent case of Bella Italia Restaurants Ltd. v Stane Park Ltd. and others (2019) EWHC 2747 (“Bella“) the High Court considered an interesting point. Namely, whether a tenant who has entered into an agreement for lease is obliged to complete the lease where the landlord has changed between the time of exchanging the agreement for lease and completing the lease itself.
In Bella, the freehold owners of a unit in Colchester (“the Trustees“) under construction entered into an agreement for lease (“the Agreement“) with Bella in November 2014 for grant of a lease of the unit (“the Lease“). In March 2017, whilst the unit was still under construction, the Trustees sold the freehold to Ropemaker; that summer Bella unsuccessfully attempted to have the Agreement terminated.
When the unit was complete Bella served a notice to complete the Lease on the Trustees. The Trustees queried why the notice had been served on them, given that they no longer owned the unit. However they informed Bella that Ropemaker were ready and willing to complete. Bella refused to enter the Lease with Ropemaker: they claimed that the Agreement was void and it could no longer be completed on the agreed terms as Ropemaker was not the original contracting party under the Agreement. The reasons for the refusal are not specified but we know that many restaurant chains have struggled in a difficult market.
It was for the High Court to determine whether the Agreement and the obligation in it to grant the Lease was personal to the Trustees or if the obligation to grant the Lease could have been performed by Ropemaker.
What did the Court decide?
The Court decided the case on the basis of contractual interpretation. A natural starting point for analysis is clause 15.1 of the Agreement which reads “The Landlord shall …grant to the Tenant and the Tenant shall accept from the Landlord the Lease on the terms set out in this Agreement”. This was the crux of Bella’s argument as they contended that under the Agreement the Trustees were the Landlord.
However, clause 15.2 stated that the Tenant could not require the Landlord to grant the Lease to any person other than the Tenant i.e. Bella. There was similar wording in clause 15.3 which prohibited the Tenant from parting with the benefit of the Agreement. On the basis of these provisions the Court applied the contractual maxim expression unius est exclusion alterius – the mention of one thing is to the exclusion of another. Thus, it could be said that clause 15.1 was not intended to create a personal obligation but on the other hand, the express stipulations in clauses 15.2 and 15.3 made the benefit of the Agreement personal.
The Court concluded that Bella’s claim failed. Bella was not entitled to refuse to accept the Lease and it was not entitled to terminate the Agreement. Instead the Trustees could procure that Ropemaker granted the Lease to Bella in accordance with their obligations under clause 15.1.
What can be taken away from this decision?
Remember that given the principle of freedom to contract, parties, for the most part, are entitled to assign the benefit or burden of a contract unless expressly stated otherwise. It is important that you understand the terms of your agreement, and make certain that any restrictions which you intend to be included, are unambiguous.
For tenants – If the covenant strength or identity of your prospective landlord is important to you then seek to ensure that the agreement you enter into is personal to the landlord named in it.
For landlords – Usually the identity and covenant strength of the tenant is important to a landlord. Consider making the agreement for lease or specific clauses personal to a named tenant and excluding the tenant’s successors in title in order to restrict the tenant assigning or parting with the benefit of its interest under an agreement for lease.