Beware Omissions in Lease Terms – Judge Fills the Gap and Gives Landlord a Shock Summary

A commercial landlord made representations to the commercial tenant before a lease of a cafe was granted. The tenant argued that these comments inferred that the property had been rewired and was safe.  However, the lease was unclear as to who was responsible for the repairs to the electrical and other infrastructure. Following a series of electrical fires the tenant closed the shop and made a claim for damages on the basis that the landlord had falsely or negligently made representations before the business lease was entered into and also on the basis that (although there was no clear written term that the landlord should be responsible for maintaining the electrical infrastructure) there was actually an implied term that the landlord should be responsible for repairs.   The Court of Appeal held in favour of the tenant.

This serves as a reminder that it is important for a lease to identify precisely who is responsible for which obligations in a lease of a commercial premises.

This Court of Appeal case (Civil Division) was between the Appellant J N Hipwell & Son (the Landlord) and the Respondent Mrs Clare Szurek (the Tenant).

In this case, the Respondent Tenant, Mrs Szurek, had entered a commercial premises in which she ran a cafe trading under the name of Mocha-Mamas.  This was located at Glendon Lodge Farm Complex, Kettering.

The Respondent Tenant’s initial claim focused on problems that she experienced with the electrical wiring. A resultant fire and other issues caused her to have to close the business for which she claimed damages.

Mrs Szurek, claimed that she had entered into the lease relying on representations made by the Appellant landlord to the effect that there had been rewiring and that it had been inspected and passed on inspection and was safe.  She claimed that these representations were false or negligent and that she was entitled to terminate the lease on that basis. She also claimed that there was an implied term, within the lease, to the effect that the landlord was to be responsible for maintenance and repair of the electrical installations and that there was also an implied warranty that the electrical installation was, at the date of the lease, safe.

Mr Justice Hildyard, in the Court of Appeal, considered the case which had, in the County Court, held in favour of the tenant.

One of the grounds on which the landlord sought to overturn the lower court’s judgment was that the lease contained an “Entire Agreement” (“EA”) clause. The goal of an EA clause is to ensure, as best as possible, that written contractual terms form the entire agreement 2 parties to a contract and specifies that no reliance should be placed on any comments made by parties outside of the lease terms. This was explained by Justice Lightman in another case as follows:

“The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long forgotten or difficult to recall or explain) in which to found a claim such as the present to the existence of a collateral warranty.”

Mr Justice Hildyard was inclined to agree that the impact of the EA clause was likely to result in the representations not forming part of the agreement.   However, he went on to consider a well-established legal rule: “that a term may be implied where it is necessary to give business efficacy to the contract in question.”

He stated that an EA clause does not affect or prevent the implication of a term being implied on the grounds of business efficacy. He commented as follows:

“It cannot be supposed that the parties would have intended an entire agreement clause to cause the agreement to fail, and to prevent the court from saving it, if there is an available and appropriate means of doing so consistently with, and indeed to give effect to, what the Court finds must have been the true intentions of the parties.”

Further, he went on to state that:

“The question then is whether implication of the term placing on the appellant landlord an obligation to ensure that the electrical installation and supply to the Premises was safe and certified is necessary in order to give business efficacy to the lease.”

The judge, in considering the terms of the lease, identified “a plain and obvious gap.” He stated that except for the insurance covenant no express provision was made as regards either the exterior of the premises nor as to its plumbing or electrical installation and supply.

This, he concluded, was an obvious gap inconsistent with the objective intentions of the parties.  The judge concluded that:

“To ensure that the lease does not lack commercial or practical coherence… the obvious gap should be plugged by implying a covenant on the part of the landlord to the effect that the electrical installation and other service media provided was safely installed and continues to be covered by any requisite certificate.”

Mrs Szurek was granted judgment in the sum of £22,725.50 together with interest and costs. The landlord’s appeal was dismissed.

J N HIPWELL & SON (Appellant) v MRS CLARE SZUREK (Respondent)

The Court of Appeal (Civil Division) [2018] EWCA Civ 674 Case No: B2/2016/0869

The full judgment can be found at: http://www.bailii.org/ew/cases/EWCA/Civ/2018/674.html

If you have any queries or require legal assistance on commercial leases please contact Ash Johnson on 03300 24 24 20.