Questions and Answers on Leases

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LEASES 1 Question Number One: Whether it is Possible to Terminate a Lease through unforeseen circumstances. Frustration under the English law is a doctrine responsible for setting aside the contracts in which unforeseen events have the capability of rendering contractual obligations difficult to implement, or it has the capability of radically making a change to the principal purpose of entering into a contract by the parties involved. On a historical note, it was impossible to set aside the provisions of a contract, after its formation. However, in 1863, in the case of Taylor vs. Caldwell, the court was able to establish this doctrine of frustration[1]. This was a landmark case, whereby the courts held that an individual is not held liable for the performance of a contract, which is made impossible because of unforeseen events, which are not under the control of the contracting parties. However, the question to ask is whether it is possible to implement this doctrine on contracts that involve leases and tenancy. In 1943, in a case involving Cricklewood property vs. Leighton, the courts was of the opinion that it is nearly impossible to end any lease agreements through the doctrine of frustration. Under this case, there were war time regulations which were enacted, and their main purpose was to prohibit people from erecting building in areas that already had permit to build, or building leases. These areas required the lessees to build shops. The regulations were enacted because of the world war, which was viewed as unforeseen event[2]. However, the court determined that despite the existence of the war, it is impossible to terminate a lease, based on the doctrine of frustration. However, this decision by the court was challenged, and repelled in a landmark case between National Carriers vs. Panalpina ltd, in the year 1981. The house of Lards was able to agree that this doctrine of frustration can be applied in the termination of leases. The court unanimously denoted that the principle of frustration is applicable in circumstances, which some supervening events or activities occur, and it is impossible or difficult to perform the contract, or thee events under consideration have radically altered the contract, as it had been contemplated when the parties to the contract managed to enter it. This means that the events under consideration have managed to alter the contract, in a manner that it will be disadvantageous to another party, in case the contract under consideration is fulfilled. In the court decision of Taylor vs. Caldwell, the courts believed that such kind of factors, qualify in rendering a contract inadmissible[3]. Under this case, National Carriers entered into a 10 year lease agreement, to use a warehouse. The lease was able to allow only the building to be in use for the warehouse. The local authority, on the other hand, was able to close the only road that led to the ware house. This is for a period of 20 months. This meant that the use of the warehouse was not beneficial to the tenants, for the 20 months that it was closed. The National Carriers sought to invoke the doctrine of frustration, for purposes of terminating the lease agreement[4]. The National Carriers argued that the closure of the road, by the local authority was unforeseen event, and it had an impact on the manner in which they could use the building. This is because it significantly altered the main purposes of entering into the lease agreement under consideration. This is a decision supported by Lord Simon, in the Panalpina case where he asserted that the duration of time taken for closing the road significantly altered the contractual obligations of the parties involved. This is in regard to what they had contemplated during the time of executing the contract[5]. Based on this fact, it would be unjust to hold the natural carriers liable to the execution of the contract, and hence the lease contract could be dismissed through the notion of frustration. Furthermore, while considering whether the lease can be frustrated by a supervening event, there is a need of looking at the time period of the interruption. In this case, the time was about 20 months, which is a significant period of time that had the capability of altering the intention of a lessee in acquiring the building. In coming up with their decision, the House of Lords denoted that there are two major factors that make it possible to for frustration to qualify as grounds of breaking a lease contract. These factors are,

If the events or activities under consideration might make it impossible for the parties to the contract to fulfill their obligations. However, the events or activities under question should be unforeseen. If they occur, then it is possible to cancel the lease, on the grounds of frustration.
Another factor to put into consideration is on determining whether the supervening events will pass all the risks to one party only. However, the House of Lords passed a resolution that there was no general principle that could guide the court in determining on whether to decide if the lease contract presents a risk to only one party of a contract.

The only dissent in this case came from Lord Russell, who argued that land is a substance that is not destructible, and based on this fact, the doctrine of frustration cannot apply to leases. This is the view that the judges had in the case of Cricklewood (1943) who argued that it is not possible to subject contracts touching on the leases of land and buildings on the doctrine of frustration. Furthermore, Lord Russell, argues that every risks associated with the lease, are passed on to the tenant, in circumstances where the lease has been entered to[6]. Lord Russell was therefore dissenting the fact that, for a lease contract to qualify under the doctrine of frustration, there is no need of the lease to pass the liability test. However, his views were ruled out by majority votes, making it possible for a lease contract to be rendered useless through the doctrine of frustration. Question Number Two: Tenant Liability in Leases. It is important to explain that a frustrating event and activity, even if it is not sufficient to discharge a lease, may operate in a manner that it may suspend the provisions of a covenant in the lease. This would therefore excuse the non-performance of the obligation under consideration. This situation is best depicted in the case of Libyan Foreign Bank versus the Bankers Trust Company. This was a complicated case that involved three countries, United States, Libya and United Kingdom. The Libyan Foreign Bank wanted to withdraw some money from the Bankers Trust, but because of the sanctions issued by President Reagan, the Bankers Trust refused to pay the money[7]. However, the Bankers Trust was unable to pay the money, because it required the permission of its subsidiary in United States to issue the payment. However, the courts ruled that the Bankers Trust had an obligation of paying the money, and this is because of the manner which the money was paid, and the money under consideration did not belong to the Bankers Trust. However, there was a dilemma, because the Bankers Trust could not pay the lease, without the approval of its subsidiary in United States[8]. On the other hand, its subsidiary could not grant the permission, because Libya was under sanctions from President Reagan. This therefore means that it was temporally illegal, to pay the money. It is important to explain that under this case, the courts were trying to denote that a tenant can refuse to pay rent, when the covenant or lease under consideration becomes temporally illegal. This means that as long as the covenant or lease under consideration is illegal, then the tenant does not have an obligation to pay. The 1981 case of Panalpina vs. National Carriers is a significant authority that explains circumstances whereby a client or a lease is not liable to the payment of rent. This is in circumstances whereby a supervening event that is not under the control of the lessee appears. This is another case that identifies instances whereby the lessee can fail to pay rent. This means that any event, that has the capability of causing a significant variation in the building that a lessee uses, can limit his or her ability to pay rent to the tenant. In this case, the supervening event was the closure of the roads by the local council making it inaccessible for 20 months[9]. These conditions greatly altered the nature of the building, and hence the client could not pay rent, and this is because the building under consideration was not in the same condition, as the tenant expected. Furthermore, it was a warehouse, and this means that it was a commercial property, whose alteration and variation made the company to experience a variety of losses. In the case of John Lewis versus Viscount Chelsea, the courts held that it is possible for the parties of a contract to dishonor the elements of a contract, if they are able to provide any lawful or legal excuse[10]. Bibliography: Barr, Warren. “Frustration of Leases, The Hazards of Contractualisation.” Northern Ireland Quartely 52.1 (2001): 82-97. Print. Top of Form Bottom of Form Bright, Susan. Landlord and Tenant Law in Context. London: Hart, 2007. Print. Top of Form Bottom of Form Davey, Martin. Landlord and Tenant Law. London: Sweet and Maxwell, 1998. Print. Top of Form Bottom of Form Dowding, Nicholas, Martin Rodger, and Edward Peter. Woodfall: Landlord and Tenants. London: Looseleaf, 2014. Top of Form Bottom of Form Gray, Susan, and Francis Gray. Elements of Land Law. Vol. 6. Oxford: Oxford UP, 2011. Top of Form Bottom of Form Leases. Rev. 1997. ed. London: International Accounting Standards Committee, 1997. Top of Form Bottom of Form Luxton, Peter, and Margaret Wilkie. Commercial Leases (Law and Practice). London: XPL, 1998. Top of Form Bottom of Form Mcfarlane, Ben, Nicholas Hopkin, and Sarah Nield. McFarlane, Hopkins & Nield Land Law: Text, Cases and Materials. Oxford: Oxford UP, 2012. Top of Form Bottom of Form Pawlowski, Mark. The Forfeiture of Leases. London: Sweet and Maxwell, 1993. Top of Form Bottom of Form Sparkes, Peter. A New Landlord and Tenant. London: Charles Hartford, 2001.

[1] Warren, Frustration of Leases, The Hazards of Contractualisation, 93 [2] Gray & Gray, Elements of Land Law, 521. [3] Nicholas, Rodger and Peter, Woodfall: Landlord and Tenants, 33 [4] Peter, and Wilkie, Commercial Leases (Law and Practice, 41 [5] Susan. Landlord and Tenant Law in Context, 33 [6] Martin. Landlord and Tenant Law, 29 [7] Leases. Rev. 1997. ed. London: International Accounting Standards Committee, 41 [8] Ben, Hopkin, and Nield. McFarlane, Hopkins & Nield Land Law: Text, Cases and Materials, 39 [9] Mark. The Forfeiture of Leases, 42 [10] Peter. A New Landlord and Tenant, 51

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