A recent Court of Appeal judgement has found that a landlord was not in repudiatory breach of an agreement for lease by delaying construction works.
In Telford Homes (Creekside) Ltd v Ampurius Nu Homes Holdings Ltd, the parties entered into an agreement under which Telford agreed to construct a development of four blocks (A, B, C and D) of mixed residential and commercial use.
It was intended that Ampurius as tenant would take on a 999-year lease in relation to the commercial units. However, funding difficulties led to work on Blocks A and B being suspended. The landlord assured the tenant that it was committed to completing the development and eventually resumed work. However, shortly after work was resumed, Ampurius terminated the contract for repudiatory breach.
At first instance, it was found that Telford had breached the provisions of the agreement for lease which stipulated that it should carry out the works with due diligence and use reasonable endeavours to procure completion by the expiry date or as soon as reasonably possible thereafter. It was held that Telford was in repudiatory breach.
Telford appealed against this decision on the basis that there had not been repudiatory breach and that the High Court had not identified the correct date for assessing whether the breaches of contract were repudiatory.
The Court of Appeal found for Telford, holding that:
- the test for repudiatory breach was whether the breach had deprived the injured party of substantially the whole benefit of the contract. In this case, the benefit the injured party was intended to obtain from the performance of the contract was a 999-year lease of the commercial units of the development.
The Court held that the delay suffered had caused the tenant little if any loss as the delay was short in the context of a 999-year lease and the landlord had always intended to complete the development. Therefore, Telford’s breach was not repudiatory.
- The Court should look at the position on the date of purported termination of the contract, even in the case of actual rather than anticipatory breach. In looking at the position on this date, the Court should take into account any steps taken by the defaulting party to remedy the breach and to take likely future events into account.
The Court of Appeal held that the High Court had been wrong to assess repudiation by
reference to the date on which the breach had taken place and not the date of purported termination, by which date the work had actually restarted.
This decision is likely to be of interest to many businesses. In the current economic climate, in a number of sectors, it is becoming increasingly common for parties to have difficulty funding their commitments. This judgement clarifies how the Court will assess whether breaches are repudiatory in nature, the date by reference to which that assessment should be made and the situations in which such a breach can be cured.
In particular, the Court of Appeal’s finding that in some situations, a party can cure an actual breach is notable as previous authority indicated that only an anticipatory breach could be cured. It also demonstrates that the cure can be relevant to the question of whether there is a repudiatory breach in the first place.
This decision also confirms that the test for repudiation is difficult to pass and the best guard against litigation is for the parties to include express provisions addressing when termination is permitted and the financial consequences of that termination in their contract.
Myerson are the premier corporate commercial solicitors in Cheshire and South Manchester.