Court Implies Covenant Into Lease to Provide Business Efficacy

Many commercial leases provide that the formal document represents the entirety of the agreement, superseding any prior agreements that may have been reached. An important Court of Appeal ruling has, however, made clear that such clauses do not preclude the implication of such additional provisions as are needed to make the lease 'make sense' in business terms.

The case concerned a lease of café premises. Amongst other flaws, it made no provision in respect of where responsibility lay for ensuring the safety of the property's electrical wiring. It did, however, provide that the lease represented the entire agreement and that the tenant could place no reliance on any statement or representation made by the landlord prior to the document being executed.

After a number of incidents caused by faulty wiring, including a small fire, the tenant accused the landlord of a repudiatory breach of the lease. She closed the café and quit the premises before suing the landlord in respect of her business losses. Her claim was upheld by a judge, who awarded her £22,750 in damages.

In dismissing the landlord's appeal against that ruling, the Court noted that, in failing to place responsibility for electrical safety on either party, the lease contained a plain and obvious gap. Notwithstanding the entire agreement clause, it was therefore necessary to plug that gap by implying a term into the lease in order to achieve practical coherence and business efficacy.

Taking into account the factual background to the case and the wording of the lease, the Court found that the relevant burden fell upon the landlord. A covenant was implied into the lease that required the landlord to ensure the safety of electrical installations on the premises and to provide a certificate to that effect.

J N Hipwell and Son v Szurek