The tenants sought to argue that there was a “temporary frustration” of the lease over the periods of lock-down and enforced closures of the premises, resulting in rent not being payable for such periods that lockdown. Frustration arises where an event occurs, after contract formation, which is beyond the parties’ control rendering it impossible to perform the contract. Alternatively, it could be where the relevant obligation is transformed into a radically different obligation from what was contemplated at the time the contract was entered into.
The tenants argued there is a principle of contract, and of law, that a party can be released from an obligation where it is becomes impossible for it to be performed legally.
Additionally, the tenants argued that the effect of their being unable to operate from the premises in accordance with the “Permitted Uses” in the leases results in a partial failure of consideration to relieve them from their liabilities to pay rent.
Reasons they were unsuccessful
For frustration, the question was, whether the situation had become so “radically different” so that it was outside what was the reasonable contemplation of the parties as to render it “unjust” for the leases to continue. Master Dagnall concluded that it had not. In order to determine this, Master Dagnall took into consideration the term, the period of disruption and the remaining term of the leases to calculate the mathematical effects regarding the proportion of the contractual terms which were “lost” due to closures.
The higher the proportion, the more unjust and the closer to satisfying the frustration test. Master Dagnall noted that the period of disruption was not more than 18 months for any of the tenants, that all leases had more than one year left to run and had 1954 Act protection (tenants had an automatic right to a lease renewal).
Master Dagnall noted that the 1954 rights were valuable and those rights would be lost if the leases were frustrated. Master Dagnall also noted that there was no such thing as a “temporary frustration”, effectively suspending the contract for a period of time.
As to the illegality argument, Master Dagnall noted that whilst this was an excuse for one obligation (i.e. not to open) it does not itself relieve liability to pay rent.
In relation to the failure of consideration argument, Master Dagnall did not consider that the tenants being unable to trade in accordance with the Permitted Uses was really a “partial failure of consideration”, but rather simply an unexpected occurrence which means that the leases are not (as) beneficial as the tenants expected and this was no fault of the landlords. Master Dagnall said that the leases did not provide that the rent was dependent upon the tenants being able to enjoy such use, except in the limited circumstances of the rent cesser clauses (which he had held did not apply – argument 1)