Break Notices: Whether a term could be implied into a break clause relating to notice timescales (Wigan Borough Council v Scullindale Global Ltd – 2021)
The Court assesses whether a break notice was valid, and whether any term could be implied to require a break notice to be served within a ‘reasonable time’.
The background
In Wigan Borough Council v Scullindale Global Ltd [2021], the Council had granted a lease of Haigh hall, a Grade II listed country house, to the tenant, granting planning and listed building consent to the tenant for the conversion of the property into a luxury hotel. The tenant covenanted to refurbish the property to a condition ‘appropriate to a four-star boutique hotel’ by 23rd May 2018, and default of this covenant entitled the Council to break the lease ‘at any time’ and regain possession.
A break notice was served by the Council on 16th September 2019, stating a break date of 22nd November 2019. The tenant remained in occupation and the Council issued proceedings for possession and damages. In its counterclaim, the tenant argued that the Council’s determination of the lease was unlawful and also claimed damages.
The court considered whether the break notice was valid in the context of the wording ‘at any time’, and whether any implied terms applied to state that a break notice had to be served within a reasonable time. The court also determined an appropriate valuation date for the purposes of damages payable to the tenant, and whether the Council could recover damages for trespass and mesne profits given the tenant’s occupation beyond service of the break notice.
The decision
The High Court found in favour of the Council, agreeing that the break notice had been validly served and the lease had been terminated. The tenant’s proposed refurbishment works had not been completed by the 23rd May 2018, nor by the date the break notice was served.
The break notice did not need to be served within any reasonable time and no term was to be implied to this effect; the lease wording should be read according to its ordinary meaning. Unless the lease expressly stated as such, the break did not need to be exercised within any particular timeframe following the termination event, and the Council had not waived its right to break the lease by continuing to accept rent from the tenant following the termination event.
Having failed to meet the refurbishment target, the tenant was entitled to call on the Council to exercise its option to break. The tenant could then have made time of the essence, requiring the Council to act promptly.
A term was implied to the effect that the break could only be exercised so long as the termination event (in this case, the tenant’s failure to refurbish within an agreed timeframe) persisted.
The valuation date was found to be the date that the break was deemed to be exercised, being 22nd November 2019. Because the pandemic has affected the whole hospitality sector, with no realistic prospect of a sale of the property – and certainly no sale at a value higher than that assessed as at 22nd November 2019 – the court valued the Council’s damages and mesne profits at nil.
Advice and action
The High Court’s judgment in this case supports previous decisions where lease wording is interpreted according to its ordinary meaning, with no terms implied which change the commercial meaning or operation of the lease.
A break which can be exercised ‘at any time’ carries no requirement of promptness or ‘reasonable’ time limits, so long as the termination event, or breach of lease, is still persisting at the time the break notice is served.
The High Court found in favour of the Council, agreeing that the break notice had been validly served and the lease had been terminated. The break notice did not need to be served within any reasonable time and no term was to be implied to this effect.
