A tenant’s bleak midwinter

28 December, 2012

Canonical UK Limited, a tenant in Millbank Tower, was told by a court just before Christmas that it had not successfully terminated its lease. As a consequence it will be liable for rent of almost £1.5 million over the next four years. The dispute with Canonical’s landlord, TST Millbank LLC, concerned a conditional break clause to end the lease before 15 February 2013, on satisfying various conditions including paying the rent up to and including the break date and payment of one month’s yearly rent as a reverse premium.

In February 2012 Canonical served notice on TST to terminate the lease on 22 August 2012. In June 2012, it paid TST’s invoice for the full quarter’s rent as well as the quarterly service charge in advance. In addition Canonical: 1) allowed TST to conduct viewings of the premises; 2) carried out substantial works of repair and reinstatement; 3) negotiated with TST the payment of a sum in lieu of re-carpeting; 4) vacated the premises; and 6) returned its access cards to TST.

In September 2012, TST claimed that as Canonical had not paid the one month reverse premium the lease was continuing. Canonical applied to the court for a declaration that the lease had ended.

The issue in dispute was whether the payment made by Canonical in June 2012 was sufficient to discharge the break clause conditions. Canonical claimed that the payment included two months rent up to and including the break date, and the one month reverse premium.

Mr Justice Vos found in favour of TST. He reiterated that leases will be construed strictly and that business certainty is desirable for all parties. He held that, as in the forfeiture case of Capital and City Holdings Limited v Dean Warburg Limited, the words “proportionately for any part of a year” should not be taken as reducing the rent payable just because the lease may end in the middle of a particular quarter. It was unknown whether the lease would end before the break date. Consequently the reverse premium had to be paid in addition to the full quarter’s rent, leaving it to be later determined whether the excess rent was repayable.

Canonical is appealing the judgment and it is anticipated that the appeal will be heard in February 2013.