A recent English case reminds us to take care to be specific about the consequences of breach of contract. In Mears Ltd v Costplan Services (South East) Limited (December 2018), it was held that, although a landlord had breached the requirements of an agreement for lease, this did not automatically justify termination of the agreement for lease.
This was a pretty typical arrangement: the landlord had agreed to build student accommodation and, once it was built, the tenant would take a lease of the student accommodation. The landlord agreed to build a building within certain tolerances. The agreement had what looks like quite a common clause:
“The Landlord shall not make any variations to the Landlord’s Works or the Building Documents which… 6.2.1 materially affect the size (and a reduction of more than 3% of the size of any distinct area shown upon the Building Documents shall be material), layout or appearance of the Property.”
It emerged that the building (or parts of it) would in fact end up outside these tolerances. The tenant did not want to take the lease. If the agreement for lease had gone just one step further and said “If the Landlord breaches clause 6.2.1, the Tenant may by notice to the Landlord terminate this Agreement”, the tenant would be home and dry: simply serve a notice and walk away.
However, the agreement obviously didn’t contain that provision. So the tenant decided to attack the practical completion process, but failed. The tenant also argued that “on a true construction of the agreement for lease” (am I the only one who hears the chime of desperation in these words?) failing to build within the tolerances was a material and substantial breach of the agreement for lease.
The court ruled that although there had been a breach of the agreement for lease, this breach was not necessarily so fundamental that it entitled the tenant to terminate the contract. Even though there was a material change to the works (according to the contract) and the landlord’s making the change was a breach of the agreement for lease, the landlord’s breach wasn’t necessarily a material breach of the contract justifying termination of the contract. It’s quite a subtle point and it’s easy to see why lawyers sometimes get accused of sophistry.
So the tenant was left having to accept a building that didn’t fit its requirements. This might seem harsh, but it is a reminder that just because one party is in breach of the contract, it doesn’t mean to say you can terminate the contract, or stop complying with it yourself. It really depends on whether the breach is fundamental to the contract or not. In this case, the court decided that the deviation from tolerance wasn’t so fundamental as to justify breach.
The tenant isn’t left without a remedy. The tenant will still have a damages claim against the landlord and possibly claims against the contractor or other members of the professional team. Even though you don’t have the remedy you really want, you still have a remedy. But if there’s a remedy you really want, write it down in the contract. Ironically, if you get it wrong, you could find yourself in breach of the contract yourself!
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The information and opinions contained in this blog are for information only. They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice. Before acting on any of the information contained in this blog, please seek specific advice from Gilson Gray.