Avocet Industrial Estates LLP v Merol Ltd & Anor

This case concerns a tenant’s break clause contained in a lease of commercial premises. The question which arises is whether the First Defendant as tenant under the lease has validly operated the provisions of that break clause. The tenant says that it has, and the landlord says that the tenant has not.

The lease in question was granted on 17^th March 2005. By the lease, premises known as Units 300 and 400 Avocet Business Park, Dudbridge, Stroud, Gloucester were demised for the term of 10 years beginning on 1^st February 2005. The landlord under the lease was, and remains, Avocet Industrial Estates LLP, who is the Claimant herein. The tenant under the lease was originally known as Lomer Fine Foods Limited and is now known as Merol Limited and is the First Defendant herein. The Second Defendant is Tudor Rose International Limited (the parent company of the First Defendant) who joined in the lease as a guarantor of the tenant’s obligations.

Clause 1 of the lease defined Annual Rent, Default Interest Rate, Interest Rate and Rent Payment Dates. The Annual Rent was an annual sum rising from £44,100 to £67,500 and was subject to review (pursuant to clause 7) with effect from a date which I understand is agreed to be 17^th March 2010. There is some ambiguity about the amount of the rent reserved after the end of the fourth year of the term until the review date and there was initially a dispute about that matter. However, at the trial the parties proceeded on the basis that the rent payable after the end of the fourth year of the term (and subject to review with effect from 17^th March 2010) was £67,500.

Default Interest Rate was defined as 4% above the Interest Rate which, in turn, was defined as:

“interest at the base lending rate from time to time of National Westminster Bank plc, or if that base lending rate stops being used or published than at a comparable commercial rate reasonably determined by the Landlord”.

The Rent Payment Dates were the four usual quarter days.

Clause 2 of the lease reserved a rent which had five components. These were: (1) the Annual Rent, (2) a Service Charge, (3) an Insurance Rent, (4) all interest payable under the lease and (5) all other sums due under the lease.

Clause 6.1 of the lease obliged the tenant to pay the Annual Rent by four equal instalments in advance on the Rent Payment Dates. The clause further provided:

“The payments shall if required by the Landlord be made by banker’s standing order.”

Clause 8 of the lease dealt with the provision of services and the payment of a service charge. In summary, the clause required the tenant to pay an estimated service charge by four equal instalments on each of the Rent Payment Dates. The clause then provided for the landlord to procure the preparation of an account of the actual costs of services following which the tenant would be required to pay its share of any shortfall between the estimated costs and the actual costs or, alternatively, its share of any excess of the estimated costs over the actual costs would be credited against succeeding instalments due in relation to service charge.

Clause 9.3 of the lease required the tenant to pay “on demand” an insurance rent to the landlord. Further provisions of the lease required the tenant to make various other payments. Thus, clause 11 referred to the tenant paying costs in connection with matters such as water and sewerage; clause 11 did not expressly refer to the landlord making a demand for payment; this may have been on the basis that the relevant payment was to be made to a third party rather than to the landlord although, as will be seen, the landlord’s managing agent regularly demanded reimbursement of costs which the landlord had incurred in relation to matters such as water and sewerage. Clause 12 referred to the tenant paying “on demand” a fair proportion of the costs of certain common items. Clause 15 referred to the tenant paying certain costs of the landlord including legal and professional costs on specified matters; this clause did not expressly refer to the landlord making a demand for payment.

Clause 14 dealt with Default Interest and Interest as follows:

“14.1

If any Annual Rent or any other money payable under this Lease has not been paid by the date it is due, whether it has been formally demanded or not, the Tenant shall pay the Landlord interest at the Default Interest Rate (both before and after any judgment) on that amount for the period from the due date to and including the date of payment.

14.2

If the Landlord does not demand or accept any Annual Rent or other money due or tendered under this Lease because the Landlord reasonably believes that the Tenant is in breach of any of the tenant covenants in this Lease, then the Tenant shall, when that amount is accepted by the Landlord, also pay interest at the Interest Rate on the amount for the period from the date the amount (or each part of it) became due until the date it is accepted by the Landlord.”

Clause 17 of the lease provided that the Annual Rent and all other money due under the lease was to be paid by the tenant or any guarantor without deduction, counterclaim or set-off.

By clause 26 of the lease, the tenant covenanted to keep the demised premises in good repair and condition save that the tenant was not obliged to keep the demised premises in any better state or condition than they were in at the date of the lease, as evidenced by an attached schedule of condition. Clause 35.3 provided for certain circumstances in which the landlord, having carried out works of repair to the premises, was entitled to recover its costs from the tenant “on demand”.

By clause 36, the tenant covenanted to indemnify the landlord against all expenses, costs, claims, damage and loss arising from certain matters, in particular, from a breach of the tenant’s covenants. There was no express reference to the landlord making a demand for payment.

Clause 39 was a forfeiture clause. It contained the conventional wording which allowed forfeiture for non-payment of rent “whether it has been formally demanded or not”.

Clause 45 of the lease was the tenant’s break clause. Clause 45.2 defined the Break Date; it is agreed that this date is 17^th March 2010. The right to break the lease was personal to the original tenant. In summary, clause 45 allowed the tenant to give a notice not less than three months before the Break Date to terminate the lease on the Break Date. The clause was a very detailed one and laid down a number of particular requirements as to the validity of a break notice and as to service of such a notice. In particular, clause 45.4 stated that the Break Notice should be of no effect in certain specified circumstances. It is appropriate to refer to three of the specified circumstances which were in these terms:

“45.4

A Break Notice shall be of no effect if:

…

45.4.4

at the Break Date any payment under this lease due to have been paid on or before that date, has not been paid, or

45.4.5

…

45.4.6

at the Break Date there is a subsisting material breach of any of the tenant covenants of this lease relating to the state of repair and condition of the Property, or

45.4.7

at the Break Date the Tenant has not paid to the Landlord a sum equal to 6 months Annual Rent”

Clause 45.14 stated that time was of the essence in respect of all time periods in clause 45 (save for one exception which is not material and which is in any event not wholly clear).

On the same day as the lease, the landlord and the tenant entered into a Rent Deposit Deed. Pursuant to this deed, the tenant deposited £19,828.13 into an interest earning account. The deed allowed the landlord to draw on the deposit in certain circumstances of default by the tenant. By clause 8.2 of the deed, the tenant was entitled in certain circumstances to be paid the interest which accrued on the monies in the account. Clause 8.2 provided that:

“No such payment may be made if there is at that date any default by the Tenant … ”

The Rent Deposit Deed defined “default” as a failure by the tenant to pay any part of the rents reserved by the lease or any money, including interest, payable pursuant to the lease. Clause 9.3 of the deed provided that the rights of the landlord under the deed were without limitation to the rights of the landlord under the lease.

On 11^th August 2009, the solicitors then acting for the tenant (who are not the solicitors acting for the tenant in this litigation) served on the landlord a break notice pursuant to clause 45 to determine the lease on 17^th March 2010. The notice was sent by recorded delivery and was received by the landlord on 12^th August 2009. It is accepted that the notice was in an appropriate form and was served in accordance with clause 45.

The break notice was accompanied by a letter from the tenant’s solicitors. That letter dealt with a number of matters which were referred to in clause 45. One such matter, pursuant to clause 45.4.6, related to there being no material breach of the tenant’s covenants as regards the repair and condition of the property. The letter suggested that the parties should meet at the property to discuss whether any work of repair was outstanding. In particular, the letter stated that the tenant was not aware of any breach of the lease and specifically referred to the fact that the tenant had not received any notice under the Rent Deposit Deed indicating that the landlord intended to make any withdrawal from the deposit account on account of any breach by the tenant of the lease.

The letter of 11^th August 2009 continued by referring to the Annual Rent, the Insurance Rent and the Service Charge. As to the Annual Rent, the letter stated that the tenant was up to date with that rent and that the tenant intended to continue paying the Annual Rent in the manner set out in the lease up to the Break Date. The letter also referred to clause 45.4.7 and stated that the tenant would arrange to make that payment nearer to the Break Date.

As to the Insurance Rent, the letter stated that the tenant had not received a formal demand for the Insurance Rent but the tenant also noted that it had not received any notice from the landlord of intended withdrawal from the deposit account. The letter asked the landlord to confirm if it was expecting payment of any Insurance Rent prior to the Break Date.

As to the Service Charge, the letter stated that the tenant had paid the instalments on account of service charge and not received any certificates as to the actual service charge expenditure so that it had not been required to pay any shortfall based on the difference between the estimated and the actual expenditure. The letter asked the landlord, for the avoidance of doubt, to forward copies of any service charge certificates which there might have been.

The letter then referred to the balance in the deposit account and noted that those monies were to be repaid to the tenant one month after the termination of the lease. The letter further stated that the tenant was entitled to payment of the interest earned on the deposit account at intervals of not less than 6 months. Finally, the letter stated that the tenant would be prepared to discuss leaving the property before the Break Date if that would be of assistance to the landlord.

As I have stated the Break Notice and the covering letter were received by the landlord on 12^th August 2009. On the same day, the tenant or more accurately its parent company (the Second Defendant) paid into its bank account a cheque from the landlord for £2260.02, which was the interest which had been earned on the deposit account. As stated earlier, the tenant was entitled to the interest on the deposit account if it was not in default (as defined in the Rent Deposit Deed) under the lease. At the trial, the tenant suggested that the landlord had paid the sum of £2260.02 as a result of the letter of 11^th August 2009, which contained a reference to the tenant’s entitlement to this interest. Whilst I find that suggestion a little unlikely, in view of the timing of the events, there was no other evidence of any communication or event which might have led the landlord to make the payment. In any case, I do not think that the trigger which led to the landlord making payment is relevant. Apart from the possibility that the landlord’s cheque for £2260.02 was in response to the letter of 11^th August 2009, there was no other immediate response from the landlord to that letter.

On 14^th September 2009, the landlord’s managing agents sent to the tenant an invoice for charges said to be due for water, sewerage, drainage and management charges. On 15^th September 2009, the landlord sent to the tenant an invoice for the quarter’s rent said to be due on 26^th September 2009 (in fact, 29^th September 2009).

On 13^th October 2009, the tenant paid the rent due on 29^th September 2009. The tenant also paid the sums demanded in the invoice of 14^th September 2009 but there was no specific evidence as to when precisely that was.

On 30^th October 2009, the tenant’s solicitors wrote again to the landlord stating that there had been no formal response to the letter and the notice of 11^th August 2009 although the solicitors understood that Mr Lindley of the landlord had suggested that the right to break the lease did not arise because the right was personal to the original tenant and the rent had been paid by Tudor Rose International Limited. The tenant’s solicitors’ letter then dealt with that issue in some detail.

On 11^th November 2009, the landlord replied to the letter of 30^th October 2009 and asked for further information about the company structure which included the original tenant and Tudor Rose International Limited. On 17^th November 2009, the tenant’s solicitors replied with such information and dealt further with the possible issue as to the right to break being personal to the original tenant. The landlord did not reply to the letter of 17^th November 2009 and there was no issue raised at any later time as to the ability of the tenant, as the original tenant, with a change of name, to claim to exercise the right to break.

On 25^th November 2009, the tenant’s solicitors wrote further to the landlord. They referred to an earlier suggestion that the parties might meet to discuss the question of any outstanding repairs. They asked the landlord to confirm whether it was intending to serve a schedule of dilapidations on the tenant as the tenant would prefer one to be served earlier rather than later. The landlord did not respond to that letter.

On 1^st December 2009, the landlord served on the tenant an invoice for the insurance rent for insurance for the period from 1^st October 2009 to 30^th September 2009. The tenant paid that insurance rent on 18^th December 2009.

On 15^th December 2009, the landlord served on the tenant an invoice for a quarter’s rent said to be due on 26^th December 2009 (in fact, 25^th December 2009). The tenant paid that rent on 29^th January 2010.

On 21^st December 2009, the landlord’s managing agents served on the tenant an invoice for a quarter’s service charge on account and a separate invoice for charges for water, sewerage, drainage and management charges. Those sums were paid but there was no precise evidence as to when they were paid.

On 1^st March 2010, surveyors instructed by the landlord wrote to the Second Defendant (presumably on behalf of the tenant) a letter enclosing a schedule of repairs and dilapidations and other matters. The schedule was said to be dated 16^th February 2010. This schedule was not produced at the trial. The letter continued by referring to the tenant being liable to pay the costs of the preparation and service of the schedule and that invoices for these would be produced in due course. There was no evidence that any such invoices were produced. The surveyors asked the tenant to contact them to discuss the schedule. There was no evidence as to what, if anything, happened in that respect. Finally, the letter referred to clause 45.4.6 of the lease and quoted the relevant provision.

On 16^th March 2010, the tenant wrote to the landlord. This letter was marked “without prejudice” but it was accepted that the letter could be relied upon at the trial. The letter referred to the earlier letters from the tenant’s solicitors starting with the letter of 11^th August 2009. The letter noted that the landlord had not replied to those letters apart from a letter of 11^th November 2009 and the recent letter of 1^st March 2010 from the landlord’s surveyors.

The letter of 16^th March 2010 enclosed a cheque for £39,656.25 and it was explained that this was the equivalent of 6 months Annual Rent (£33,750) plus VAT as referred to in clause 45.4.7 of the lease. The letter confirmed that the tenant had vacated the property and enclosed the keys to the property. The letter then explained the tenant’s contention that the Annual Rent was not £67,500 per annum but was only £44,100 per annum. Nonetheless, the tenant’s cheque was based upon the Annual Rent being the higher figure. This was to ensure, for the avoidance of doubt, that the tenant had complied with clause 45.4.7. However, the letter stated that the tenant expected to receive a prompt refund of all excess rent payments. The letter also stated that the tenant had paid Insurance Rent for the period to 30^th September 2010 and expected a refund of Insurance rent for the period from 18^th March 2010 to 30^th September 2010 in the sum of £2,692.99. The letter also referred to Service Charge having been paid for the period from 18^th March 2010 and stated that any such payment was to be refunded.

The letter of 16^th March 2010 then stated:

“We are not in breach of any of the pre-conditions set out in clause 45 of the Lease.”

The letter then went on to elaborate that statement by referring to clause 45.4.6 and then to clause 45.4.4. In relation to clause 45.4.6, the letter explained in detail why that provision was satisfied. The letter enclosed a number of photographs of the property taken on 16^th March 2010. In a later part of the letter, there were further matters put forward as to the condition of the property and as to clause 45.4.4.

In relation to clause 45.4.4, the letter stated:

“We are not aware of there being any payments which are due to have been made under the Lease on or before the Break Date and which have not been paid.”

The letter then referred to the statements made on this topic in the letter of 11^th August 2009 and repeated that the tenant had not received any notice from the landlord of an intention to withdraw any sum from the deposit account on account of any breach by the tenant. Finally, the letter stated:

“We re-iterate that we are entitled to exercise our right to Break and to bring the Lease to an end in this way. We further re-iterate that we believe that there are no outstanding sums due to you under the Lease, and we look forward to promptly receiving the return of … our Rent Deposit monies in accordance with the terms of the Rent Deposit Deed and a refund of the other sums referred to in this letter.”

The letter of 16^th March 2010 was delivered by hand to the landlord’s offices. At 14.20 on that day, a Mr Williams of the landlord signed a copy of the letter to acknowledge its receipt. The package containing the letter and the enclosures was passed to Mr Large of the landlord at around that time. He was in a meeting at his offices when the package was delivered and he came out of his meeting to receive the package. He knew that the package was being delivered on behalf of the tenant and he also knew that the Break Date under the lease was the next day, 17^th March 2010. Mr Large did not open the package immediately he received it. He returned to his meeting. In his oral evidence, Mr Large said that his meeting ended between 3 and 4 pm. He then opened the package, read or scanned the letter and saw what it said and what was enclosed with it.

There was no relevant communication between the landlord and the tenant on 16^th or 17^th March 2010 nor, indeed, until the tenant received the landlord’s letter of 7^th April 2010.

On 7^th April 2010, the landlord wrote to the tenant in connection with the tenant’s attempt to operate clause 45 of the lease. The letter was signed by Mr Lindley on behalf of the landlord. The letter stated that the requirements of clause 45 had not been met and referred in particular to clause 45.4.7, 45.4.4 and 45.4.6.

As to clause 45.4.7, the landlord stated that the tender of a cheque on the day before the Break Date was not sufficient. The letter referred to the need to have cleared funds by the Break Date.

As to clause 45.4.4, the letter stated:

“Clause 45.4.4 requires that all payments under the Lease due to be paid must have been paid at the Break Date. You have persistently paid rent and other sums due under the Lease late, significantly so in many cases, and Default Interest was and is clearly payable under clause 14.1 at 4% above NatWest base rate. You have been reminded of this previously and refused to pay interest (dismissing it as “silly”), a position we did not, and do not now, accept bearing in mind the clear terms of the Lease. This default alone is sufficient to invalidate the Break Notice, regardless of the amounts involved. Liability for Default Interest also relates back to all non-time-barred amounts which would in this case be as long ago as the grant of the Lease itself on 17 March 2005. ”

As to clause 45.4.6, the letter contended that there were substantial dilapidations at the property. The letter then contended that the lease continued and had not been determined. The tenant’s cheque and the keys were returned with this letter.

There ensued substantial correspondence between the parties to which it is not necessary to refer. Various points that had been raised in earlier correspondence are not now pursued. I refer to the dispute as to the amount of the Annual Rent in the fifth year of the term and prior to 17^th March 2010 and the issue as to repairs and satisfaction of clause 45.4.6. Thus, the two challenges which remain in relation to the tenant’s attempt to operate clause 45 of the lease are confined to the application of clauses 45.4.4 and 45.4.7 to the facts of this case. I will describe the landlord’s case in reliance on clause 45.4.7 as “the first challenge” and the landlord’s case in reliance on clause 45.4.4 as “the second challenge”.

The first challenge requires the court to determine whether the 6 months payment referred to in clause 45.4.7, was made on or before the Break Date. This general issue raises the following subsidiary issues:

The second challenge requires the court to determine whether a payment which was due on or before 17^th March 2010 remained unpaid as at 17^th March 2010. This general issue raises the following subsidiary issues:

Clause 45.4.7 of the lease applies where the tenant has not “paid” the sum equivalent to 6 months rent by the Break Date. There is no definition of “paid” in the lease. There is considerable general law as to what is required of a creditor obliged to “pay” a sum of money.

In Chitty on Contracts, 30^th ed. Vol. 1 at paras. 21-039, 21-055, 21-056, 21-086 and 21-087, it is stated that the general common law rule is that a creditor must pay his debt by a tender of legal currency and a cheque is not legal currency. That is how the law was stated in the judgment of the Court of Appeal in Beevers v Mason (1978) 37 P&CR 452 at 458. In that case, the Court of Appeal went on to describe the circumstances in which that general rule might be affected by express or implied agreement between the parties. I do not read the passage in the judgment of Lord Woolf MR in Homes v Smith [2000] Lloyd’s Rep Bank 139 at [22] – [23] as stating a different common law rule. Lord Woolf’s comments relate to the ability of the court to draw an inference that the parties intend that the common law rule is not to apply in a particular case. That is consistent with the way the matter was described in Day v Coltrane [2003] 1 WLR 1379 at [8]; Homes v Smith was cited in that case.

The general common law rule will not apply where there is an express or implied agreement to the contrary. Such an agreement can be inferred from conduct. A common course of conduct which is considered in the cases is where there has been a practice of a party making periodical payments by cheque and where the cheques have been accepted.

The parties did not agree as to the readiness of the court to imply, from a course of dealing, an agreement that a tender of a cheque will be accepted as a tender of payment under the contract. In Homes v Smith, at [22] – [23], Lord Woolf thought that the suggestion that a party was required to turn up at the creditor’s premises with the appropriate sum in actual pound notes was “nonsense”. He added:

“In many situations an inference could be drawn that payment could be made by cheque.”

In Beevers v Mason (1978) 37 P&CR 452, Shaw LJ giving the judgment of the Court of Appeal considered what test to apply in order to determine whether a course of dealing justified a finding of an implied agreement that a tenant could pay rent due by posting a cheque for the rent to the landlord and so that the date of the posting the cheque would be regarded as the date of payment and so that the risk of loss in the post lay with the landlord and not with the tenant. Shaw LJ referred to earlier cases, notably Pennington v Crossley & Sons Ltd (1897) 13 TLR 513, where the court had resisted the suggestion that the mere fact that cheques had been sent in the post in the past and had been accepted when received would support the inference of such an agreement. Shaw LJ then said at 458 – 459 (in a landlord and tenant context):

“On general principles, the landlord should have the rent in cash in his hands by the due date. This requirement may, however, be waived by express arrangement, or by necessary implication where the facts are sufficiently strong to establish that the landlord has shown that he is content to accept payment by cheque posted by the due date of payment. Inferences of this nature are not to be too readily drawn, but, where the facts support them clearly and emphatically, they are not to be dismissed.”

The approach identified by Shaw LJ has been applied in a large number of later cases in the law of landlord and tenant: see Sopwith v Stutchberry (1985) 17 HLR 50, Official Solicitor v Thomas [1986] 2 EGLR 1, Luttenberger v North Thoresby Farms Ltd [1992] 1 EGLR 261 (Court of Appeal) and [1993] 1 EGLR 3 (Ferris J), Hannaford v Smallacombe [1994] 1 EGLR 9 and Day v Coltrane [2003] 1 WLR 1379. I was also shown a short report of D’Jan v Bond Street Estates Ltd [1993] EGCS 43.

However, Chitty on Contracts, 30^th ed. Vol. 1 at para. 21-056 (citing Pennington v Crossley & Sons Ltd (1897) 13 TLR 513 in a footnote) states:

“Where … a creditor expressly or impliedly authorises his debtor to transmit the amount of the debt by cheque through the post, the debtor is discharged if he complies with the authority by sending the cheque in a letter properly addressed to the creditor, even though it does not reach him. The necessary authority is not to be implied from the mere fact that the previous course of dealing between the parties has been to send cheques by post, though very little evidence of authority is required in addition to evidence of such a course of dealing.” [emphasis added]

In the present case, the tender of payment which is relied upon was the delivery by hand of a cheque on 16^th March 2010. The cheque was not put in the post and was not lost. Accordingly, in my judgment, the question for the court is whether the course of dealing between the parties up to 16^th March 2010 displaced the common law rule requiring a tender of currency and permitted a tender by cheque. In my judgment, it will normally be easier to show that a particular course of dealing justifies that finding than it will be to show that a particular course of dealing justifies the further finding that, not only is tender by cheque acceptable, but that the date of the posting of the cheque is the date of payment and that the risk of loss in the post is on the creditor and not the debtor. I regard this difference in approach to be justified by the statement of Lord Woolf in Homes v Smith and not contradicted by what was said in Beevers v Mason.

The lease was granted on 17^th March 2005. For the first three years after that date the tenant paid the sums due under the lease by cheques which were accepted by the landlord as payment. Rent was payable four times a year. On account payments of service charge were made four times a year. Insurance rent was paid once a year. In addition, the landlord through its managing agent demanded payment of sums for water and sewerage etc. The evidence did not identify all of those demands but the invoices which I have seen in relation to those charges are for periods of three months so that it would seem that such invoices were sent and were paid by cheque four times a year.

This pattern of payments was interrupted, to an extent, for a period beginning in the middle of 2007. The evidence referred to a substantial flood in the premises. I understand that this was the result of a major flood which affected a substantial area of Gloucestershire in around July 2007. It appears that the Annual Rent was suspended from around July 2007 until 1^st March 2008. The evidence was not clear as to whether other payments under the lease were suspended for a similar period. The insurance rent appears to have remained payable and I think it is more likely than not that the service charges and the invoices for water and sewerage continued to be paid by the tenant as clause 9.6 of the lease only refers to the Annual Rent being suspended.

In around April 2008, the tenant arranged for payments which were due under the lease to be paid by its parent company, the Second Defendant. The parent company had the practice of paying by bank transfers under the BACS system and did not customarily use cheques for paying creditors. Thus, from around April 2008, the payments which were due under the lease were made by BACS and not by cheque. The first payment by BACS was made on 18^th April 2008. Thus, when the tenant tendered a cheque for payment pursuant to clause 45.4.7 on 16^th March 2010, this was the first tender of a cheque for the payment of a sum due under the lease for about two years.

Another relevant event in the period prior to 16^th March 2010 was the sending of an email, by the landlord to the tenant, on 23^rd October 2007. Prior to that date, the tenant had received two invoices from the landlord and two other invoices from the landlord’s managing agents. These invoices had not been paid. One of the invoices from the landlord was in relation to rent but this was later cancelled by a credit note because, I assume, of the suspension of rent on account of the flood damage. In the email, the landlord wrote:

“Can you please settle all outstanding invoices a.s.a.p. or we will be charging interest on the overdue amounts.

…

Rather than me always chase (sic) you for money and make myself even more unpopular, can we please set up a standing order so we get paid on time

Your earliest attention would be appreciated.

Thanks”

There was no evidence of any earlier communication between the parties of the kind which might have led to the landlord writing “rather than me always chas[ing] you”. I was not shown any reply by the tenant to that email. The tenant did not pay the invoices, referred to in the email, until some time later. One of the invoices was cancelled by a credit note issued by the landlord. The other invoice from the landlord was paid on 16^th November 2007. There was no specific evidence as to when the tenant paid the two invoices from the landlord’s managing agents. Thus, it seems that the tenant did not comply with the first request to pay outstanding invoices as soon as possible.

Further, the tenant did not set up a standing order in relation to any payment due under the lease. The payment made on 16^th November 2007, to which I have just referred, was by cheque and the cheque was accepted by the landlord. It is also more likely than not that the two invoices from the landlord’s managing agent were settled by cheque and again the cheques were accepted by the landlord. On 12^th December 2007, there was an invoice for insurance rent and that was settled not later than 2^nd January 2008 by a cheque which was accepted by the landlord. The next payment after that which is identified in the evidence was on 18^th April 2008 by BACS transfer.

I next need to consider whether the course of dealing described above justifies the implication contended for by the tenant that the parties had agreed that the landlord would accept a tender of a cheque in payment of a sum due under the lease.

In my judgment, in the period from 17^th March 2005 to 23^rd October 2007 (at least) there was a consistent course of dealing which clearly indicated that the landlord had not insisted on a tender of currency in relation to sums due under the lease but that the landlord agreed to accept a tender of a cheque in relation to such sums. During that period there had not been a tender of currency on any occasion and there had always been a tender of a cheque. Further, during that period, no other method of payment had been adopted. The landlord submitted at the trial that it had never agreed to accept payment otherwise than by cleared funds but in my judgment what the course of dealing does show is that the landlord consistently accepted payment by cheque. It is well established that an acceptance of a cheque results in payment of the sum due but subject to the condition that the cheque is in due course met on presentation and, when the cheque is met, payment is effective as at the date of the tender of the cheque. It is also relevant that there had never been any difficulty with a cheque not being met on presentation and there was no evidence of any communication between the parties in the period up to 23^rd October 2007 in which the landlord said that he wanted cleared funds and would not accept a cheque as a means of providing cleared funds.

If the clock had stopped at 23^rd October 2007, I would have held that the course of dealing up to that point clearly gave rise to an implied agreement that the landlord would accept a tender of a cheque as a tender of payment of a sum due under the lease.

Just because the landlord had impliedly agreed, prior to 23^rd October 2007 to accept a tender of a cheque as a tender of payment does not mean that the landlord is bound by that agreement for the full term of the lease. The landlord is entitled to give timely notice bringing that implied agreement to an end: see Tankexpress A/S v Compagnie Financiere Belge des Petroles SA [1949] AC 76 per Lord du Parcq at 103 – 104.

It is therefore relevant to ask whether the email of 23^rd October 2007 amounted to timely notice bringing the earlier implied agreement to an end. In my judgment, it did not. The complaint made in the email was not about payment by cheque. A payment can be made on time by cheque or it can be made late by cheque. The landlord’s complaint was about payment being made late. The email does not even mention payment by cheque as any part of the problem. The email asks the tenant to set up a standing order. It seems to me that the language in which the email is written is not sufficiently clear to amount to a notice which terminates the implied agreement which I have found was previously in existence. The language is too much in the form of a request rather than a unilateral imposition. Further, the request to set up a standing order could only make sense in relation to sums which could be made the subject of a standing order. The quarterly instalments of the Annual Rent could be made the subject of a standing order. So too could the instalments of on account service charge, although in practice the amounts might need to be altered each year. Any payment in respect of excess service charge could not be made the subject of a standing order. Nor could the annual payment of insurance rent. Nor could other payments under the lease which were of a fluctuating amount. Even if I were prepared to hold that the email terminated the implied agreement about acceptance of a cheque in relation to those payments which could be the subject of a standing order (which I am not) I would in any event not be prepared to hold that the email unilaterally terminated the implied agreement as to the acceptance of a cheque in relation to other payments.

My findings as to the effect of the email are consistent with what the parties themselves did in the period from 23^rd October 2007 to April 2008, that is, payments continued to be made by cheques which were accepted by the landlord.

Clause 6.1 of the lease allowed the landlord to “require” the tenant to pay the Annual Rent by standing order. The landlord disclaimed any submission that the email of 23^rd October 2007 was a requirement for the purposes of clause 6.1. That stance is consistent with my conclusion that the language of the email was not sufficient to be a notice terminating the previous implied agreement as to the acceptance of a cheque. Further, the fact that clause 6.1 only refers to payments of the Annual Rent being by standing order supports my conclusion that it would not have been practicable to have had a standing order in relation to sums due under the lease where the amount due would fluctuate.

I have already explained that the payment arrangements from April 2008 involved BACS transfers and not cheques. This change in the arrangements does not show that the tenant went along with the landlord’s request in the email of 23^rd October 2007. BACS transfers are different from standing orders. In particular, the timing of the BACS transfer remains under the control of the tenant. Further, I do not think that the voluntary adoption by the tenant of a system of payment by BACS transfers shows that the tenant has abandoned the benefit of the implied agreement that it may pay by cheque rather than by currency.

Accordingly, subject to one remaining point which I need to consider, I find that at all times up to and including 16^th March 2010 there was an implied agreement that the landlord would accept payment by cheque of sums due under the lease.

The remaining point is that the landlord submitted that whatever the position might be in relation to other sums due under the lease the parties cannot have intended that an implied agreement of this kind could extend to payment of the sum required to satisfy clause 45.4.7. It was stressed that time was of the essence of the requirement that this payment be made by the Break Date. It was submitted that it was more consistent with an essential time limit of this character that the landlord had payment in cleared funds and not simply payment subject to the condition that the cheque would be met on presentation. I do not agree. In my judgment, the course of dealing in this case applied to every type of sum due under the lease which fell due during that course of dealing. I am unable to imply an agreement to the effect that payment by cheque would be accepted as payment except in relation to one particular sum which might be paid under the lease, namely, the sum needed to satisfy clause 45.4.7. Further, it is relevant to consider the decision in Beevers v Mason (1978) 37 P&CR 452 itself. In that case the landlord had given the tenant a notice, under the legislation relating to agricultural holdings, to pay rent within two months, otherwise the landlord was entitled to serve a notice to quit which would take effect to terminate the tenancy. Time was of the essence of the requirement to pay within the two month period. That fact did not prevent the court looking at the course of dealing over the preceding period and asking the general question: had the parties impliedly agreed that the landlord would accept payment of the rent by cheque? The fact that the sum being claimed was arrears of rent to be paid before an essential deadline did not affect the question which was asked. I recognise that the issue in that case was arguably different. In that case, the previous course of dealing related to payments of rent and the sum demanded in the notice was a payment of arrears of rent. Nonetheless, I get some support for my view from this case, and the many other cases which followed it, where there was no suggestion of any difference due to the fact that time was, by statute, of the essence in relation to the payment.

The result of the above reasoning is that the landlord was not entitled to reject the tender of the tenant’s cheque on 16^th March 2010. In so far as this is necessary, I also find on the evidence that the tenant’s bank account was in funds so that the cheque tendered on 16^th March 2010 if it had been presented by the landlord would have been met without difficulty.

This finding means that it is unnecessary to consider the further subsidiary issues in relation to the first challenge to the Break Notice. However, for the sake of completeness I will consider the second subsidiary issue and comment briefly on the third subsidiary issue.

The tenant submitted that even in the absence of an implied agreement binding the landlord to accept a cheque for the payment in accordance with clause 45.4.7, the cheque tendered on 16^th March 2010 was, in the eyes of the law, accepted by the landlord, so that payment of the sum due was made upon the landlord receiving the cheque on 16^th March 2010.

In support of its argument, the tenant cited Polglass v Oliver (1831) 2 Cr & J 15, Homes v Smith [2000] Lloyd’s Rep Bank 139 and Day v Coltrane [2003] 1 WLR 1379.

In Polglass v Oliver, the debtor tendered payment by country bank notes. The creditor was entitled to reject the tender on the ground that the notes were country bank notes. The creditor rejected the tender on the ground that he claimed to be entitled to a sum larger than that tendered. It was held that he had waived the right to object on the ground that the tender was in country bank notes. One member of the Court of Exchequer, Baron Bayley, explained that if the creditor had objected on the ground that the tender was in country bank notes that would have given the debtor the opportunity of getting other money and making a good and valid tender but by not doing so the creditor “deluded” the debtor. Another member of the court, Baron Garrow said:

“It is much more convenient to the mercantile world, that a tender in paper, if not objected to at the time, should be considered valid.”

In Homes v Smith, this decision and a later one (Jones v Arthur (1840) 8 Dowl PC 442) were said correctly to describe the legal position. Lord Woolf MR then added:

“I refer to those older cases because, in my view, they indicate that it is relatively easy for a person to accept a mode of performance which is not strictly that which the contract requires. If the person concerned accepts that mode of performance, it is not then open to that person thereafter to make an objection.”

The other point of interest in Homes v Smith concerns the approach taken by the court to the question whether the payee in that case had accepted the cheque. Payment had to be made by 2 pm on a particular day. The cheque was delivered to the payee’s solicitors between 11 am and 12 noon on that day. From the recital of the facts in the judgment, it seems that the payee and his solicitors did not do anything with the cheque before 2 pm that day. Further, the payer had reason to know that the payee’s solicitor was not dealing with the matter as he had other commitments. It seems that the payee only negotiated the cheque some time after 2 pm on that day. Nonetheless, the Court of Appeal held that the payee had accepted the cheque and therefore the cheque amounted to payment and in accordance with established authority (Felix Hadley & Co v Hadley [1898] 2 Ch 680 and Marreco v Richardson [1908] 2 KB 584) payment was made upon the receipt of the cheque by the payee.

In Day v Coltrane, Tuckey LJ referred to the need for the payee to reject a tendered cheque “promptly” if he were to avoid a finding that he had accepted the cheque.

In the present case, the tenant tendered the cheque in the afternoon of 16^th March 2010. Between 3 and 4 pm that day, Mr Large of the landlord saw the cheque which had been tendered. He knew that the Break Date was 17^th March 2010. He also read the letter of 16^th March 2010 and could see (if he did not know it already) that the sum in question had to be paid before the Break Date. He did not say anything to the tenant on the 16^th or 17^th March 2010.

There are competing arguments as to whether this failure to reject the cheque as a mode of tender before the end of 17^th March 2010 was a failure to reject the cheque promptly and was therefore, in law, an acceptance of the cheque. The time between the landlord receiving the cheque and the end of 17^th March 2010 was short. However, the thinking time needed for the landlord to decide whether it was content with payment by cheque should have been limited. If the landlord had genuinely wanted to receive the sum intended to be paid in cleared funds before the end of 17^th March 2010, it could have said so without delay and given the tenant the chance to transfer the monies to the landlord’s bank account before the end of 17^th March 2010. There was no difficulty in the landlord communicating its position to the tenant either by telephone or by email. Of course, if the landlord had wanted to take detailed legal advice on whether it was open to the landlord to reject the cheque and gain an advantage thereby, that would probably have taken longer.

Whether the landlord’s failure to reject the cheque on 16^th or 17^th March 2010 amounted in law to an acceptance of the cheque is a clearly arguable matter. I incline to the view, particularly in view of the way the matter is expressed in the authorities to which I have referred, that there was just enough time for the landlord to say that it rejected the cheque and required cleared funds. I do not think that the time needed should be extended to allow the landlord to decide on the best way of defeating the tenant’s intended operation of the break clause.

In any event, Homes v Smith is authority for the further proposition that the court is entitled to look at what the landlord did in relation to the cheque both before and after the deadline for the payment to be made. The landlord did not reject the cheque until the tenant received the landlord’s letter of 7^th April 2010, which was over three weeks after the cheque had been tendered. During that time, the landlord said nothing to the tenant to inform the tenant that the cheque was not accepted. I find that the cheque was not rejected promptly; therefore, in law, it must be taken that the landlord has accepted the cheque. As the cheque was accepted in this way, the result is that the sum intended to be paid to comply with clause 45.4.7 was tendered on 16^th March 2010 and the landlord is not entitled to rely on its action in refusing to present the cheque for payment to argue that the tenant did not pay the appropriate sum pursuant to clause 45.4.7.

I have now held that the tender of the cheque on 16^th March 2010 was a valid tender of payment of the sum referred to in clause 45.4.7. That means that the Break Notice is not invalidated by clause 45.4.7. The tenant argued that if I had not reached that conclusion on the arguments so far considered, I should hold that the landlord was estopped from relying upon clause 45.4.7. Estoppels are highly fact sensitive. If I were to consider the arguments as to the alleged estoppel, I would have to assume the facts or the law were different from that which I have already held to be the case. I do not consider it would be helpful to consider the arguments as to estoppel by reference to a factual and/or legal position different from that which I have determined is the case.

The tenant says that on the true construction of the lease, the tenant is not liable to make a payment pursuant to clause 14.1 unless and until it receives a valid demand for such payment. The landlord contends that the tenant is liable to pay such sum as is due pursuant to clause 14.1 even without the landlord demanding that the tenant perform its obligation to make such payment.

The argument principally focussed on whether the tenant would know what sum it had to pay in the absence of a demand from the landlord specifying the sum which the landlord claimed from the tenant. To deal with this argument, it is necessary to examine the different ingredients of clause 14.1.

Clause 14.1 begins by referring to the case where any Annual Rent or any other money payable under the lease has not been paid by the date it is due. Whether that is the case or not is something which either the landlord or the tenant can work out. The clause then obliges the tenant to pay interest at the Default Interest Rate. The Default Interest Rate is defined to be 4% above the Interest Rate which is defined, principally, by reference to the base lending rate from time to time for National Westminster Bank plc. To ascertain the base lending rate of that bank, it may be necessary to make an inquiry of that bank. Either the landlord or the tenant can make that inquiry; the landlord is not in any special position as regards that information. The definition of Interest Rate provides for the particular case where National Westminster Bank plc stops using or publishing a base lending rate. In such a case, the rate is to be reasonably determined by the landlord as a comparable commercial rate. Obviously, the landlord is in a special position in that respect. Where this particular case arises, then there is no applicable rate unless and until the landlord makes his determination and communicates it to the tenant. If that particular case were to come about, then in advance of the landlord making its determination and communicating it to the tenant, the tenant would not be able to calculate what sum it might become liable to pay under clause 14.1. However, the tenant would again become able to calculate the sum it is liable to pay as soon as the landlord communicates to the tenant its determination as to the applicable rate. That communication need not take the form of a demand identifying the sum which is due under clause 14.1.

Clause 14.1 continues by referring to the period from the date on which the payment is due to be made until the date on which it is actually made. There was considerable argument as to whether the tenant would always know the date when the relevant payment was made. The argument considered the different ways in which payment might be made whether by cash, or by cheque, or by same day bank transfer or by bank transfer involving a delay between debiting the paying account and crediting the receiving account.

In the case of a payment by cash which is handed to the landlord, the landlord and the tenant would both know when the sum was paid; similarly in the case of a cheque handed to the landlord, where the cheque is met on presentation. If the cheque is not met on presentation, it is likely that the landlord would know that fact before the tenant would but the tenant would soon come to know it. In the case of cash or a cheque sent by post (which is perhaps unlikely in the case of cash), the tenant could assume that the cash or cheque would be received by the landlord in the ordinary course of post and, of course, the tenant could arrange to track the time of delivery. If the parties had agreed that the tenant could pay rent by sending it in the post so that the date of posting was the date of tender of the rent, then the tenant ought to know the date of posting but the landlord might not necessarily know it. In the case of a same day bank transfer, again each party would be likely to have the same information at the same time. The position would be different however, if the monies were transferred from the tenant’s bank on one day and were not credited to the landlord’s account until a later day. In such a case, the landlord would know the date of payment before the tenant knew it, although the tenant could make certain assumptions as to the likely length of time before the monies would reach the landlord’s account. Having examined those various possibilities, it does appear that the information available to the landlord and the tenant may not be identical at all points in time. There may be cases where the landlord would be in a better position to know the precise date of payment. Nonetheless, in my view, it would not be right to overreact to these considerations. The suggested difference in the position of the parties is likely to be shortlived and not very significant in the usual case. In the context of the tenant’s liability to pay Default Interest, I think it unlikely that there would be any real practical difficulty in the tenant knowing what sum it had to pay under clause 14.1 even without a demand from the landlord.

The position under clause 14.1 of the lease is to be contrasted with some of the other provisions which provide for the tenant to make payments to the landlord. In the case of some of the other provisions, the tenant would not know what sum it is liable to pay unless and until the landlord makes a demand for that sum. Some of the other provisions refer expressly to the landlord making a demand for a sum; an example is clause 12.1. Other provisions do not refer expressly to the landlord making a demand for a sum; an example is clause 15.1. In the latter case, in order to make the provision work it is necessary to construe it as requiring the landlord to make a demand of the tenant before the tenant comes under a liability to pay a sum of money under the clause. It is not necessary to construe clause 14.1 as imposing such a requirement because, as already explained, the tenant is generally able to know the sum which is due under clause 14.1 even where it has not received a demand from the landlord.

The tenant drew attention to the words “whether it has been formally demanded or not” in clause 14.1. It said that the parties had agreed that there need not be a demand for the Annual Rent or other money payable under the lease in one place in clause 14.1 and this showed that the parties intended that a demand was necessary in relation to the sum which the tenant was to pay pursuant to clause 14.1. I do not accept that argument. First of all, I do not read the words “whether it has been formally demanded or not” as meaning whether demanded or not. In the case of the Annual Rent, the tenant is liable to pay quarterly instalments when the quarter days arrive; there is no need for a demand. But in relation to other payments under the lease, the payments are not due until a sum is demanded; an example is the insurance rent pursuant to clause 9.3. Clause 14.1 cannot be read to mean that the tenant is liable to pay Default Interest on insurance rent for a period even before the Insurance Rent is due and it is not due until it is demanded. The words “whether it has been formally demanded or not” are also used in the forfeiture clause (clause 39.1.1). There, the words have a well understood technical meaning as explained in Woodfall on Landlord and Tenant, Vol. 1, at para 17.120. That meaning for the words is appropriate in the forfeiture clause. I fully recognise it is not appropriate in clause 14.1. Nonetheless, my reaction to the words is that the parties appeared to have used the words to make sure the landlord is entitled to claim Default Interest. I do not read those words as entitling the landlord to say that a sum is due (for the purposes of Default Interest) when it is not due under the relevant provision which deals with that sum. In any case, the words in question are not so clear as to allow the court to read into clause 14.1 a requirement which is nowhere expressly stated that the landlord is only entitled to claim Default Interest where it has served a valid prior demand for it.

I have considered whether there is any other basis for holding that the right to Default Interest only arises if the landlord tells the tenant that the landlord is claiming Default Interest. Speaking generally, I think it is likely that there will be many cases where a landlord is entitled to claim interest on late payments but it does not do so. Indeed, in this case, the landlord only made a claim for Default Interest for the first time on 20^th November 2007 although the tenant had been late with its rent (and other sums) in earlier periods also. In those circumstances, is it open to the court to construe clause 14.1 so that the landlord is only able to rely upon it if it notifies the tenant that it intends to rely upon it to recover a specific sum by way of interest? My conclusion is that there is nothing in the wording of clause 14.1 which would allow the court to hold that there is a pre-condition to the tenant becoming liable to pay Default Interest that the landlord has served on the tenant a valid demand for such interest.

It is not in dispute that the Annual Rent and other sums payable under the lease were not paid by the due dates in each case and so it follows that the tenant did owe Default Interest, to be calculated in accordance with clause 14.1, in relation to those late payments. That will be the legal position in the absence of any express or implied agreement to the contrary or an estoppel. The tenant does not contend that there was any express or implied agreement to the contrary but does say that the landlord was estopped from contending that as at 17^th March 2010 any sum was due and remained unpaid pursuant to clause 14.1. Before considering the arguments as to the alleged estoppel, I need to consider the second subsidiary issue in relation to the second challenge to the Break Notice; this raises a question as to the true construction of clause 45.4.4.

Clause 45.4.4 refers to the case where “any payment under this lease due to have been paid on or before [the Break Date], has not been paid”. The tenant submitted that even if Default Interest was payable by the tenant without a prior demand from the landlord, such a payment was not “due” and/or it could not be said that it was due at any particular time and, therefore, it could not be said that it was due on or before the Break Date.

In my judgment, the answer to this submission follows from what I have already held is the effect of clause 14.1. Default Interest is payable under clause 14.1 when the conditions identified in clause 14.1 are satisfied. Default Interest accrues and is payable from day to day. When the liability to pay has accrued, then Default Interest is due. When Default Interest is due in this way, it is a payment due to have been made for the purposes of clause 45.4.4 and the time for payment is from day to day as it accrues.

For the sake of completeness, I wish to comment on the points made in the letter of 16^th March 2010 where the tenant stated that it was entitled to be repaid various sums which it had paid in relation to the period after 17^th March 2010. Could it be said that the tenant was entitled to set off those sums against its liability for Default Interest so as to produce the result that it did not owe any sum to the landlord? In my judgment, the answer is “no”. The sum due by way of Default Interest was due prior to and as at 17^th March 2010. Assuming that the tenant would have been entitled to a refund of certain payments if it had succeeded in determining the lease, any such entitlement would only arise after 17^th March 2010. Accordingly, the tenant did not have, before the end of 17^th March 2010, a present entitlement to a refund.

I fully recognise that the combined effect of clause 14.1, as I have construed it, and clause 45.4.4 represents something of a trap for a tenant. This is well illustrated by the way in which the landlord put its case. It searched through its records for the preceding 5 years of the term and identified every single late payment and then calculated Default Interest throughout that period. It then contended that the non-payment of this Default Interest meant that the tenant had failed to operate the break clause. This was said to be so even where the landlord had not demanded payment of the Default Interest. I also recall the decision of the Court of Appeal in Bass Holdings Ltd v Morton Music Ltd [1988] Ch 493 where the court rejected a possible literal construction of a condition in an option agreement and distinguished between subsisting breaches of covenant and spent breaches of covenant because to do otherwise would have produced a condition with which the grantee of the option would find it virtually impossible to comply: see per Kerr LJ at 518 D-E. However, in this case, I have not felt able to construe either clause 14.1 or 45.4.4 in a way which would eliminate this trap.

I now need to set out some further history which is relevant to the arguments as to estoppel in relation to non-payment of Default Interest or clause 45.4.4. I have already quoted the part of the email of 23^rd October 2007 which asked the tenant to pay outstanding invoices “or [the landlord] will be charging interest on the overdue amounts”.

On 20^th November 2007 the landlord sent the tenant an invoice for £52.11. There also seems to have been another invoice from the landlord’s managing agents for £94.51. Copies of these invoices were not produced at the trial but they were referred to in an email dated 14^th January 2008 in which they were described as relating to interest charges for late payment. I therefore infer that they were for Default Interest pursuant to clause 14.1 of the lease.

In the email of 14^th January 2008 to which I have referred, the landlord reminded the tenant that the invoices had not been paid. On the same day, the tenant replied to this email saying that the invoices were “unreasonable, and under the circumstances, silly!!”. I understand that the circumstances being referred to were that the premises had been severely damaged by flooding and rent was not then payable. The landlord replied to this comment by another email of 14^th January 2008 stating that the landlord was entitled to charge for late payment under the terms of the lease and the charges could be avoided if the tenant paid on time.

The tenant paid the invoice for £52.11 on the 16^th or 17^th January 2008. I infer that the tenant also paid the invoice for £94.51 at around the same time.

In the period from January 2008 to the service of the break notice of 11^th August 2009, the tenant was late in paying the rent due under the lease on most occasions. In that period, the landlord did not serve any demand for Default Interest.

I have already referred to the letter of 11^th August 2009 which accompanied the break notice. In that letter, the tenant stated that it was up to date with the Annual Rent, the Insurance Rent and the Service Charge. The tenant did not specifically mention the question of Default Interest but did state that it did not know of any matter which placed it in breach of the lease.

I have also referred to the fact that on 12^th August 2009, the landlord paid to the tenant the interest on the deposit account which, according to the terms of the Rent Deposit Deed, was not to be paid to the tenant if the tenant was in default under the lease.

In the period from 12^th August 2009 to 16^th March 2010 the tenant was late in paying the rent due on 29^th September 2009 (paid on 13^th October 2009) and on the 25^th December 2009 (paid on 29^th January 2010). An insurance rent was demanded on 1^st December 2009 and paid on 18^th December 2009.

In the period from 12^th August 2009 to 16^th March 2010 there were 7 invoices for sums due by way of Annual Rent, Insurance Rent, Service Charge and water and sewerage services. There was no invoice for Default Interest.

I have already referred to the tenant’s letter of 16^th March 2010. In that letter, the tenant again stated that it was up to date with the Annual Rent, the Insurance Rent and the Service Charge. The tenant did not specifically mention the question of Default Interest but the tenant did state in more than one place that it was not in breach of the lease.

It may be that some of the facts which I have recited would have restricted the landlord’s ability to recover Default Interest on late payments for the whole period from the date of grant of the lease. For example, it could be strongly argued that, when the landlord sent invoices for £52.11 and £94.51 in November 2007, the landlord was representing that those sums were all of the sums in respect of Default Interest up to that time. Further, it could be strongly argued that when the landlord paid to the tenant on 12^th August 2009 the interest earned on the deposit account that the landlord was representing that the tenant was not in default under the lease and this general statement would have included the statement that the tenant did not at that point owe any Default Interest.

The tenant contended that the course of conduct which I have described above resulted in the landlord waiving any claim to interest in the absence of a formal demand and amounted to a representation that unless a demand were made the tenant would not be charged Default Interest. In the course of argument the tenant made it clear that the type of waiver relied upon was waiver by estoppel and not waiver by election. The tenant argued that the relevant representation covered the period up until the Break Date of 17^th March 2010.

In my judgment, it is difficult to find in the course of conduct in this case any positive statement, either expressly or by implication from its conduct, by the landlord about its entitlement to Default Interest in relation to any late payments in the period from 12^th August 2009 to 16^th March 2010. I am not able to find in that course of dealing an express or implied positive statement to the effect that clause 14.1 required a prior demand. Nor am I able to find an express or implied positive statement that the tenant was not liable to pay Default Interest in respect of the late payments in that period. Nor am I able to find an express or implied promise by the landlord that it would not assert a right to Default Interest in relation to those late payments either at all or unless and until it served a demand for such interest.

Although I am not able to find a positive statement which could give rise to an estoppel by representation, the tenant submitted that the present case was one of those cases where the landlord had a duty to speak and to tell the tenant that it owed Default Interest. It was said that the landlord’s failure to inform the tenant of this amounted to a representation that the tenant did not owe Default Interest. I think that I can summarise the essentials of that submission as follows:

The tenant then relied upon passages in Spencer Bower on Estoppel by Representation, 4^th ed., at pages 46 – 53. In summary, the textbook states that in some circumstances silence or inaction can constitute a representation for the purpose of an estoppel. This is where there is a legal duty to make a disclosure or take steps, the omission of which is relied upon as creating the estoppel. The textbook then discussed the decision of Bingham J in The Lutetian [1982] 2 Lloyd’s Rep 140. At page 50, various examples are given of implied representations said to be made by a failure to correct a manifested belief as to a certain matter. One such matter was where the mistaken party believed that he had complied with a contractual term. It was submitted that the passages in the text book and in The Lutetian covered this case. The tenant believed that it had complied with clause 45.4.4, it had manifested that belief to the landlord and the landlord had remained silent, not correcting what was now said to be a mistaken belief.

In The Lutetian, the facts in brief summary were that the charterers of a ship believed that they had paid the sum of money which they were due to pay by a certain deadline. The owners of the ship knew that that was the belief of the charterers but the owners also knew that the charterers had underpaid and that that fact gave the owners the right to withdraw the ship. The owners did not correct the charterers’ mistaken belief. Bingham J cited a passage from the previous edition of Spencer Bower. He then referred to Freeman v Cooke (1848) 2 Ex 654 at 663 where Baron Parke referred to a duty to disclose a fact being cast upon a person “by usage of trade or otherwise”. Bingham J then referred to the speech of Lord Wilberforce in Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890 at 903 in which he said was:

“… persuasive authority for the proposition that the duty necessary to found an estoppel by silence or acquiescence arises where a reasonable man would expect the person against whom the estoppel is raised, acting honestly and responsibly to bring the true facts to the attention of the other party known by him to be under a mistake as to their respective rights and obligations.”

Bingham J then considered the facts and said at page 158:

“The relationship of owner and charterer is not one of the utmost good faith. One must be careful not to impute unrealistically onerous obligations to those who may choose to conduct their relations in a tough and uncompromising way. There is nonetheless a duty not to conduct oneself in such a way as to mislead. I have no doubt that the owners knew that the charterers believed that they had paid the right amount. It was their duty, acting honestly and responsibly, to disclose their own view as to the charterers. They did not do so and indeed thwarted the charterers’ attempts to discover their views. Their omission to disclose their own calculation led the charterers to think, until a very late stage, that no objection was taken to the calculation. It would in my view be unjust in the circumstances if the owners could rely on the incorrectness of a deduction which they had every opportunity to point out at an earlier stage and which their failure to point out caused the charterers to overlook.”

I am able to find that many of the ingredients which were found to exist in The Lutetian also exist in the present case. The tenant believed it had paid all sums due. The landlord knew of that belief because the tenant had told the landlord of that belief. If the landlord had said to the tenant that the tenant owed Default Interest, then I would find on the balance of probability that the tenant would have paid Default Interest to avoid an argument as to its ability to determine the lease. I am satisfied that the tenant was very concerned to ensure that it had succeeded in determining the lease. Even though the letter of 16^th March 2010 put forward an argument that the rent in the fifth year was £44,100 and not £67,500, the tenant did not take the risk involved in paying a sum equivalent to 6 months at the lower rate and it paid at the higher rate. Further, if the landlord had told the tenant on the 16^th or 17^th March 2010 that it had to pay Default Interest in order to comply with clause 45.4.4, I find that the tenant could have reacted to that information quickly and transferred the money by bank transfer on the same day or even, in view of my earlier findings about the ability to pay sums due under the lease by cheque, delivered a cheque by hand to the landlord.

I have so far omitted one ingredient which existed in The Lutetian and which now needs to be considered in this case. Did the landlord know at any point before the end of 17^th March 2010 that the tenant’s belief was wrong because the tenant owed Default Interest to the landlord? If I were able to hold that the landlord did know that matter, then I would hold in the same way as was held in The Lutetian that the landlord cannot take advantage of the tenant’s mistake which at the time the landlord knew that the tenant was making. Whether one calls it an estoppel by representation through silence or an estoppel by acquiescence may not matter. In such a case, I would hold that the landlord is estopped from taking advantage of the tenant’s mistake.

In closing submissions, it was submitted on behalf of the tenant that I should find as a fact that the landlord did know on 16^th and 17^th March 2010 in particular that the tenant’s belief was mistaken. I now have to consider the evidence to see if that is indeed an appropriate finding of fact.

The landlord called a Mr Matthew Large who described himself in his witness statement as the managing director of Dudbridge Estates Limited which was an LLP designated member of the landlord LLP. It is clear that Mr Large was one of the two senior persons who acted on behalf of the landlord and whose state of mind one could attribute to the landlord. The other such person was a Mr Lindley, who did not give evidence.

In his evidence in chief, Mr Large described when he received the letter of 16^th March 2010. He said that legal advice was clearly required in relation to this letter. He then referred to the letter of 7^th April 2010 which challenged the tenant’s operation of clause 45 by relying on the failure to pay Default Interest. Mr Large’s witness statement then included a table of the dates for payment of Annual Rent and Insurance Rent, going back to September 2005, and a calculation of the Default Interest said to be due. Mr Large then referred to the emails of 23^rd October 2007 and 14^th January 2008 and said that the landlord had written to the tenant a number of times about Default Interest and that the tenant had paid Default Interest in response to an invoice of 20^th November 2007. He then stated that the lease did not require an invoice for Default Interest which was automatically due on late payments.

When Mr Large was cross-examined he was asked about the way in which clause 14.1 operated. He stated that the tenant was liable to pay Default Interest under clause 14.1 even without a prior invoice or other demand. That of course was the landlord’s legal argument at the trial. I am far from sure that I can regard the stance put forward at the trial, a stance which I have already accepted as correct in this judgment, as revealing what the landlord thought in the period up to 17^th March 2010. He was asked about the circumstances in which the landlord paid the interest on the deposit account to the tenant on 12^th August 2009. He said that the landlord would not have made the payment if it had thought that the tenant was then in default and he accepted that the tenant would then have been in default if Default Interest had been automatically payable. He was asked about the letter of 11^th August 2009 and stated that he had not thought about Default Interest at that stage. It was pointed out that no point was taken at that stage about Default Interest and he stated that he had not then considered it or that he had not given it full consideration. He said that he possibly should have raised it if he had thought it was due. He said that he was not looking for reasons to defeat the tenant’s operation of the break clause but that it was possible that Mr Lindley was looking for reasons. He was then asked about the time when he received the letter of 16^th March 2010. He said that if payments had been due for the purpose of clause 45.4.4 he would have known about it. It was put to him that it was incumbent on him to say to the tenant that the tenant was wrong (in saying that it did not owe any sums). He replied that if he had given the matter full consideration he could have raised the question of Default Interest at the time. He said the letter was sent off to the landlord’s solicitors for advice. It was not put to Mr Large in terms that at some point before the end of 17^th March 2010 he knew that the tenant owed Default Interest so that the tenant was mistaken when it said that it did not owe any sums under the lease. It was not put to Mr Large that Mr Lindley knew that matter. I understood Mr Large to be explaining, when challenged as to why he did not tell the tenant that it owed Default Interest, that Mr Large had not fully considered the matter.

Mr Lindley did not give evidence. In some circumstances, a court is prepared to draw an adverse inference from the fact that a witness who could be called to give evidence has not been called. If there had been a clear allegation in the documents setting out the tenant’s case in this litigation that Mr Lindley knew before the end of 17^th March 2010 that the tenant was making a mistake and that Mr Lindley chose not to reveal that fact to the tenant then there may have been an argument that Mr Lindley’s absence from the trial should cause the court to draw that inference. However, I do not find that the documents setting out the tenant’s case did make that suggestion. Accordingly, I do not draw any adverse inference from the fact that Mr Lindley did not give evidence.

I pointed out in the course of argument the fact that on 2^nd September 2009, Mr Large forwarded to Mr Lindley the emails which had passed between the parties on 14^th January 2008 on the question of the invoices for Default Interest. The emails were forwarded not long after the service of the break notice. I think that it is entirely possible that the landlord at that time was investigating the history to see what it could say the tenant had failed to do during the lease and to see if that history would allow the landlord to prevent the tenant operating the break clause. However, I do not think I can infer from the mere fact that Mr Lindley saw the emails of 14^th January 2008 and was considering them in the context of a possible challenge to the break clause that Mr Lindley would then have formed the view that Default Interest was payable even without an invoice for it and that the tenant owed Default Interest even though the landlord had never asked the tenant to pay it. The tenant also relied on the fact that Mr Lindley signed the letter of 7^th April 2010. That letter was on the landlord’s notepaper and was copied to the landlord’s solicitors. I think that it is more likely than not that this letter was substantially if not wholly drafted by the solicitors. Just because that letter asserted that Default Interest was due without a prior demand it does not follow that Mr Lindley always understood that to be the position. Even though I have construed clause 14.1 as imposing a liability to pay Default Interest even without a prior demand for it, I find that it would not have been obvious to Mr Lindley without specific legal advice on the point that this was the legal position. Further, if Mr Lindley had known before the end of 17^th March 2010 that the tenant owed Default Interest and that would allow the landlord to challenge the operation of clause 45 then I would have expected Mr Large also to have known that but his evidence was that he had not given the matter sufficient consideration.

In my judgment, taking all of the above matters together but in particular having regard to the way in which Mr Large described his state of mind and in the absence of a direct challenge to his evidence and/or the suggestion being put that he knew that the tenant was making a mistake, I am not able to make a finding on the balance of probability that the landlord did know before the end of 17^th March 2010 that the tenant was mistaken when it stated that it did not owe any sums under the lease. In my judgment, there is a substantial likelihood, which I find to be the greater likelihood in view of Mr Large’s evidence, that the point taken by the landlord for the first time on 7^th April 2010 was not in the landlord’s mind before the end of 17^th March 2010 and the point was taken on 7^th April 2010 as a result of legal advice after 17^th March 2010.

My finding means that this case is not on all fours with The Lutetian. Although the only authorities relied upon by the tenant were Spencer Bower and The Lutetian and although the tenant submitted that the relevant estoppel was estoppel by representation and not estoppel by acquiescence, I have gone on to consider whether the legal principles as to estoppel by acquiescence allow the court to find an estoppel in a case where one party reveals its belief, which is a mistaken belief, which is not corrected by the other party, even where that other party does not at the time know that the belief is mistaken.

Some help as to the court’s reaction to the question posed in the last paragraph is provided by the decision in Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133 (Note). Although this case was not cited to me, it is well known. In that case, the landlord had granted the tenant an option to renew its lease. The option was not registered as a land charge and was void against the landlord’s successor in title. None of the relevant parties realised that this was the position. At a time when the option was void against a successor landlord, the tenant carried out certain works in the premises. The tenant believed that it had the benefit of an option to renew, enforceable against the then landlord. Later the landlord asserted (correctly) that the option was not binding on it. The tenant alleged that the landlord was estopped from putting forward that contention. The tenant relied on the statements of principle in Ramsen v Dyson (1866) LR 1 HL 129, a leading case dealing with what is generally regarded as proprietary estoppel. The landlord put forward a number of defences to the alleged estoppel. One such defence was that the landlord could not be estopped because at the relevant time the landlord did not know that the option was void against it. The landlord cited the decision of Fry J in Willmott v Barber (1880) 15 Ch D 95 where it was suggested, for there to be an estoppel by acquiescence, there must be a mistaken belief by the party claiming the benefit of the estoppel and knowledge on the other side both of the existence of that belief and that the belief was mistaken. If such knowledge had to be shown than it could not be established because at the relevant time the landlord did not know that the option was void as against it. Oliver J held that it was not essential in every case of proprietary estoppel to establish that the party estopped knew that the other party was making a mistake. However, the judge did discuss what the situation would be where all that was alleged against the party said to be estopped was that it had silently stood by and had not pointed out that the other party was making a mistake. The judge said at 147C-D:

“… in a case of mere passivity, it is readily intelligible that there must be shown a duty to speak, protest or interfere which cannot normally arise in the absence of knowledge or at least a suspicion of the true position.”

The judge later applied that approach to the facts of that case: see at 155H.

On my findings of fact as set out above, I have held that the landlord did not know in the period up to 17^th March 2010 that the tenant’s statement in the letter of 16^th March 2010, that it did not owe any sums to the landlord, was mistaken. On the basis of the same evidence, I do not think that I have any material which would allow me to hold that the tenant had the suspicion (referred to by Oliver J) that that was the position. I consider that the degree of suspicion which would be needed to place on the landlord a duty to speak would be the degree of suspicion which amounts to blind-eye knowledge, as to which see: Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd [2003] 1 AC 469, in particular at [112] – [116]. Accordingly, even if an allegation of estoppel by acquiescence had been put forward, I would not have been able to find that such an estoppel had been established.

In view of my findings of fact which have led to my conclusion in relation to any estoppel by acquiescence, I have also considered whether it could have been argued that there was an estoppel by convention, namely, that both sides proceeded on the basis that the tenant did not owe any Default Interest in the period up to 17^th March 2010 and/or that Default Interest was not payable unless and until the landlord served a demand for the same. It might be said that if I hold (as I do) that the landlord did not know that the tenant was mistaken when it said that it did not owe any sum to the landlord, then the landlord must have been proceeding on the basis that the tenant did not owe any Default Interest and/or that Default Interest was not due because the landlord had not made a demand for the same. If it had been alleged that there was an estoppel by convention in this case, I would not have been able to find that there had been the necessary “crossing of the line”, that is, that the landlord had communicated to the tenant that such was the landlord’s position either as regards the tenant not owing any sum of money or as to the tenant’s liability in relation to Default Interest. It is established that a “crossing of the line” in this way is necessary before the court can find that there is an estoppel by convention, even where both parties have the same state of mind: see The August Leonhardt [1985] 2 Lloyd’s Rep 28 at 35.

My overall conclusions are that:

If one leaves out of account any Default Interest in relation to the period before 12^th August 2009 (because the payment under the Rent Deposit Deed arguably had the result that no Default Interest remained payable for the earlier period) then the sum due as Default Interest for late payments in the period from 12^th August 2009 to 17^th March 2010 was modest, on my calculation about £130. However, it was not suggested that the size of the amount allowed one to ignore non-compliance with clause 45.4.4. I consider that the result in this case is a harsh one but, applying legal principle, it is one which I am obliged to reach.