Avocet Industrial Estates LLP v (1) Merol Ltd (2) Tudor Rose International Ltd

Facts

The claimant landlord (L) claimed that a break notice given pursuant to a commercial lease by the first defendant tenant (T) was invalid. L had demised a 10-year commercial lease to T. Clause 45 of the lease entitled T to give not less than three months notice to terminate the lease on a specified break date. Under clause 45 a break notice would be of no effect where at the break date any payment due under the lease had not been paid, where there was a subsisting material breach of T's covenants, and where T had not paid a sum equal to six months' rent to L. Time was of the essence in respect of clause 45. T served a break notice along with a letter stating that T was not aware of any breach of the lease. The day prior to the break date, T delivered a cheque by hand for six months' rent along with the keys to the property, and confirmed that it had paid outstanding charges, was not in breach of any pre-conditions under clause 45 and had vacated the premises. T also stated that it was unaware of any outstanding amounts owing, that it had not received any notice from L that it intended to draw on a deposit account for any breach by T, and affirmed its right under the lease to terminate it pursuant to clause 45. The issues for determination were whether (i) the provision of a cheque a day prior to the break date constituted payment on or before the break date, where there was no definition of "paid" under the lease; (ii) T was liable for any unpaid amounts as of the break date, specifically for default interest allegedly due under clause 14.1 for various late payments for rent and other charges, where T had not received a demand from L; (iii) if default interest were due, L was estopped from recovering it because the course of conduct amounted to a representation that default interest would not be charged without a demand; (iv) there had been an estoppel by acquiescence.

Held

(1) Although there was a common law rule that a debtor had to pay a debt by way of legal currency, and that a cheque was not legal currency, that position might be affected by express or implied agreement between the parties, Beevers v Mason (1979) 37 P & CR 452 CA (Civ Div) followed and Homes v Smith (2000) Lloyd's Rep Bank 139 CA (Civ Div) considered. Such an agreement could be inferred from conduct; the question was thus whether the parties' dealings had displaced the common law rule. In the instant case, L was not entitled to reject T's tender of a cheque on the day prior to the break date. There had been a consistent course of dealing which clearly indicated that L had agreed to accept cheques. The fact that time was of the essence under clause 45 did not mean that L had to be paid in cleared funds and not by cheque; the implied agreement applied to every type of sum due under the lease which fell due during the parties' course of dealing (see paras 49, 55, 70-72 of judgment). (2) A demand by L under clause 14.1 was not necessary in relation to any default interest payable under that clause; there was nothing in the wording of clause 14.1 which indicated that it contained a pre-condition that L serve a valid demand on T before a liability for default interest arose. Additionally, it was unlikely that there would have been any real practical difficulty in T knowing what sum it had to pay in relation to default interest even without a demand from L (paras 88, 91). (3) There was no positive statement that gave rise to an estoppel by representation. There was nothing in the parties' course of dealings that indicated any express or implied positive statement to the effect that clause 14.1 required a prior demand, nor any express or implied statement that T was not liable to pay default interest, nor any express or implied promise that L would not assert a right to default interest at all or unless a demand had been served (para.109). (4) L's failure to inform T of any amount that was due as default interest did not raise an estoppel by acquiescence, as it could not be established on the balance of probabilities that L knew before the end of the break date that T was mistaken when it stated that it did not owe any sums under the lease, Tradax Export SA v Dorada Compania Naviera SA of Panama (The Lutetian) (1982) 2 Lloyd's Rep 140 QBD(Comm) considered. Moreover, L did not have any suspicion, amounting to blind-eye knowledge, that T's statement that it did not owe any sums was mistaken, Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) (2001) UKHL 1, (2003) 1 AC 469considered (paras 121-122, 124).

Judgment for claimant

Comment

There had been no requirement that a landlord make a demand for default interest due under a commercial lease for that debt to become due and payable by a tenant. In the circumstances, the tenant's failure to pay default interest invalidated a break notice as the debt had remained unpaid as of the break date.

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