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22nd April 2021

Always be aware of your contractual obligations and the potential risks under the contract.

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The claimant, who was the tenant under an agreement for lease, sought summary judgment in respect of a notice it had served to terminate the agreement with the defendants (the landlord under the agreement).

The agreement for lease was for a plot of land on a business park. on which a building, car park and engine testing facility were to be constructed by the defendant. The agreement for lease stated that the works should be completed no later than 1 November 2018 (the target date). If the works were not completed by the target date, the claimant was entitled to rescind the agreement by written notice if practical completion had not occurred by the long stop date (13 September 2019). The works were not completed by the long stop date however, the claimant continued discussions with the defendant with a view to the works being completed as soon as reasonably possible. By 18 March 2020 practical completion had still not taken place and so the claimant served notice to rescind the agreement.

The defendants argued that the discussions and actions of the claimant after the long stop date but before service of the notice (between 13 September 2019 and 18 March 2020) amounted to the claimant excluding its right to rescind the agreement and therefore serving the notice. The defendant relied on the application of estoppel by convention or alternatively, forbearance in equity.

There was a dispute over the dialogue between the parties in the period concerned. For example, the claimant’s chief operating office stated (in his witness statement) at a site meeting that the claimant reserved the right to rescind the agreement. This was not confirmed by the opposing parties witness statement.

The judge held that neither defence had any reasonable prospect of success for various reasons. These included that the defendants were under a contractual obligation to complete the works within a reasonable period and were subject to risk under the agreement that their work would be of little point if the claimant served notice to rescind. The claimant’s response to the defendant’s failure to achieve practical completion by the longstop date was balanced and its right to rescind the agreement was preserved. Summary judgment was awarded in favour of the claimant. 

This case Reaction Engines Ltd v (1) BNP Paribus Depositary Services (Jersey) Ltd (2) BNP Paribus Depositary Services Ltd (2021) highlights the importance of understanding your contractual obligations and the potential risks you may be exposed to if you fail to comply with trigger dates in an agreement. Here the tenant was entitled to walk away notwithstanding the extent of works the landlord had undertaken.

For advice on any commercial property matters, contact Sophia Jack on 07741 311460 or click here to email her.