13 July 2021
RED alert - Summer 2021 – 1 of 6 Insights
A development lease granted for 199 years contained a right to break in the event that the tenant did not complete its development by a certain date (as well as other grounds).
One of the many questions before the court was whether the right was still exercisable even after the development was completed albeit late. On this particular point, the Court found in the tenant's favour but it did not help as the Court went onto find that, on the facts, the development had not been completed by the time the break notice was served and so the lease was validly terminated.
This concerned a lease granted on 23 May 2016 for 199 years by Wigan Borough Council of Haigh Hall (and adjoining land), a Grade II* listed stately home built between 1827 and 1844 and situated within the Haigh Hall Country Park. It was quite clearly in disrepair and was in the ”Heritage at Risk” register maintained by Historic England. Scullindale embarked on a development project to restore Haigh Hall and to then operate as a 4* boutique hotel and wedding venue (with realistic aspirations to 5* status). Undoubtedly as an incentive to ensure Haigh Hall was restored in good time, Wigan BC was entitled to terminate the lease if certain "Milestones" were not achieved. These related, firstly, to the commencement of the works, and secondly, the completion of the works by 23 May 2018. There was no time limit by which the notice needed to be served in order to be effective.
Importantly, the lease required Wigan BC to pay compensation to Scullindale if the break was exercised and this was based on a valuation of Haigh Hall.
It was common ground that the works were commenced on time. However, on 16 September 2019, nearly 16 months after the intended completion date of 23 May 2018, Wigan BC served a notice to break on the ground that the second Milestone had not been achieved. The break notice purported to terminate the lease on 22 November 2019.
Scullindale disputed the validity of the break notice on the following grounds:
Scullindale also claimed loss of profits and damages as a result of the unlawful termination. In return, Wigan BC claimed damages and mesne profits as a result of Scullindale's continued occupation after the termination date of 22 November 2019.
There was also a dispute as to the valuation date for Scullindale's contractual right to compensation in the event that the break was effective. Scullindale argued for 22 November 2019 being the break notice termination date. This was before the real impact of the Coronavirus pandemic was known. Wigan BC, on the other hand, argued for the date when vacant possession would eventually be delivered up after the trial which would of course take the pandemic into account and result in a much lower valuation.
After considering the evidence, Judge Hodge QC found as a matter of fact that the development was not in fact completed by 16 September 2019. The question, therefore, was whether Wigan BC could still have served a valid notice given the time that had passed since the Milestone date of 23 May 2018.
On this point, the judge held that there was no reason to imply a term that the notice had to be served within a reasonable time. Scullindale could avoid the never-ending risk by serving a notice on Wigan BC making time of the essence for serving the break notice based on the Milestone not having been achieved. Wigan would then have to serve the break notice within a reasonable time for it to be effective.
However, the Judge did say that the notice could only be served whilst the breach subsisted. So once the development was complete, no notice could be served. But this did not help Scullindale as it was held that the development was not completed when the break notice was served. Further the Judge found against Scullindale on the waiver/estoppel points and, consequently the lease was validly terminated.
Turning now to the damages claims, the Judge dismissed Scullindale's claims given the finding that the lease had been validly terminated. In relation to Wigan BC's claims for mesne profits (damages for occupation) for Scullndale's continued occupation after the break date, the Judge found that these were nil given the very limited prospects of letting given the impact of COVID-19.
On the valuation date, the Judge sided with Scullindale and held that is should be treated as 22 November 2019. This results in compensation at around £1million higher than its current worth due to the pandemic.
A difficult case to decide given the length of the lease and the unusual facts and perhaps avoidable with clearer drafting. Scullindale will receive a much higher compensation payment than its current worth but they may have been looking for greater rewards ahead. Interesting that the Judge urged the parties to try and negotiate a settlement given these circumstances and the consequences of the pandemic.
by Saleem Fazal
by multiple authors