This week I was asked to review a lease by my client. My client was the intended tenant under this lease and it was a lease of part of a building. I immediately identified that the terms of the proposed lease did not include any obligation on the Landlord to maintain or repair the external and structural parts of the building and that there was no rent suspension provisions in the case of damage by an insured risk. Was this intentional? Or simply woeful drafting….? 

The lease also contained the ubiquitous “Entire Agreement” clause, meaning that the written lease agreement constitutes the entire agreement and understanding of the parties relating to the transaction contemplated and supersedes any previous agreement between the parties relating to (in this case) the grant of the lease and the obligation to repair (or not!). 

So what would the position have been if my client had simply signed the lease as drafted?

I was reminded of the case of J N Hipwell & Son v Szurek [2018] EWCA in which the tenant under a lease of a café claimed against her landlord for business losses incurred after she had to stop trading due to serious issues with unsafe electrical wiring. The tenant claimed that the Landlord had misrepresented that the electrics were safe and, in the alternative, that the Landlord had breached an implied term to maintain and repair the electrics in the building. The Landlord’s defence was, of course, the entire agreement clause which it argued would bar the tenant from any damages in respect of any representation made by the Landlord prior to the Lease being granted. 

The tenant was successful in the first instance with the judge concluding that there had been a repudiatory breach of an implied term regarding the Landlord’s obligation repair of the electrics but the Landlord appealed the decision. 

The Court of Appeal in Hipwell referred back to the decision in Marks and Spencer Plc v BNP Paribas Securities Service Trust Co (Jersey) Ltd [2016] which concerned whether there should be a term implied into a lease regarding repayment of rent after the tenant exercised a break clause in the lease. In that case the Court held that a term should usually only be implied into a lease if:

1. It was so obvious that the term should have been implied it goes without saying; or

2. Business necessity (or business efficacy) requires the term to be implied as the contract lacked commercial and practical coherence

These also only apply where there is no other provision in the lease which expressly covers the point and that there is no possibility that the parties deliberately decided not to include the term sought to be implied. 

The Court of appeal determined, on the basis that the Landlord had ultimately acknowledged that the maintenance of the electrics was his responsibility, that a term should be implied into the lease to give the contract business efficacy and that it was necessary for the lease to make commercial sense. Notwithstanding the inclusion of an entire agreement clause within the lease, a term could be implied in order to give business efficacy to a lease. 

So turning to my clients’ lease, they may very well have been able to make a similar argument should the building have fallen into disrepair during the term, but this would depend on a number of factors, such as whether there was evidence of any discussion of maintenance and repair prior to the lease being entered into, whether the Landlord had voluntarily repaired the building at any time during the term and, I suspect, whether the parties were legally represented in the transaction negotiations (as per the judgement in the Marks and Spencer case). 

On the whole, it is far better (and more cost effective) to ensure that the terms of the lease are clear and that no “gaps” exist in terms of the obligations expected of both landlord and tenant. 

In summary:

• The parties should ensure that key provisions and responsibilities of the Landlord and the Tenant are included in the Heads of Terms from the outset;

• It highlights the importance of making proper enquiries of the Landlord via your solicitor regarding safety of installations prior to a lease being entered into. Replies to Solicitors’ enquiries can usually be ringfenced from the entire agreement clause to be relied on at a later date if necessary;

• Take legal advice to ensure that your lease is fit for purpose and that the obligations and the intentions of both parties (particularly with regard to repair and maintenance) are clearly and concisely set out within it. 

If you would like advice on commercial leases, then please get in touch by emailing rcleal@prettys.co.uk.