PW & Co v Milton Gate Investments Ltd

PW & Co v Milton Gate Investments Ltd [2003] EWHC 1994 (Ch)

LANDLORD AND TENANT – SUB-LEASES DETERMINED ON TERMINATION OF THE HEAD-LEASE

Facts

The claimant held the head-tenant of the defendant’s building and sub-leased the property to several other parties. When all the relevant leases were created, all parties involved thought the law was such that if the head-tenant ended their lease, the sub-leases would remain valid and enforceable. The law was later clarified in a case which held that the opposite was true: the sub-leases would end on determination of the head-lease. The claimant ended the head-lease, and relied on a clause in the lease which allowed them to escape a penalty-fee if the building remained sublet.

Issues

The claimant would not be able to rely on the escape-clause if the sub-leases terminated on termination of the head-lease, as then it could not be said that the building remained sub-let in the manner specified in the head-lease agreement. The issue in this case was whether it was possible to ‘contract out’ of the usual consequences of ending the head-lease, such that the sub-leases continued.

Decision/Outcome

The court held against the claimant.

The court held that on the proper interpretation of the contracts in this case, the parties had purported to contract such that sub-leases would continue to exist after the determination of the head-lease. However, the court held that such a term would be invalid. It held that termination of the head-lease would always lead to the termination of the sub-leases unless the termination of the head-lease arose out of a consensual arrangement between the landlord and head-tenant other than as provided for by the head-lease.

For this reason, the sub-leases had determined when the head-lease did, and the claimant was liable to pay the penalty.