High Court decision on termination clause in agreement for lease
The case concerned an agreement by the landlords to build new units in a shopping centre and then grant a lease of them to Debenhams. The landlords had to pay a reverse premium to Debenhams in three tranches. The second tranche, of £425,000, was not paid on the due date. The next day, Debenhams served notice purporting to terminate the agreement. It relied on the termination clause in the agreement, which said that if either party should in any respect fail or neglect to observe or perform any provision of the agreement the other party could terminate the agreement by notice.
Kitchin J held that the agreement contained a multitude of obligations, many of which were of minor importance and which could be broken in many different ways. To interpret the termination clause literally would be contrary to business commonsense. A reasonable commercial person would understand the clause as meaning that, if either party should in any respect fail or neglect to observe or perform any provision of the Agreement in a way that amounted to a repudiatory breach then the innocent party could terminate by giving notice.
He also rejected arguments that time was of the essence for making the payment, and that the landlords’ conduct meant that their failure to make the payment on the due date was repudiatory.
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