Landlord’s repudiatory breach entitled tenant to terminate lease agreement

Richard Bartle and Ian Morgan of Pinsent Masons were commenting after the Privy Council ruled that a business that rented property on the Caribbean island of Nevis was entitled to walk away from the lease agreement it had signed with the landlord without penalty and to be refunded the £56,000 rent deposit it had paid before doing so.

In the case in question, Ocean View entered into a short-term lease agreement with Ramsbury Properties on 18 June 2009 for the purposes of housing migrant workers brought to Nevis from Mexico to perform work on a nearby hotel repair project.

The lease agreement that was signed provided that the lease was for the purpose of sleeping accommodation for 250 workers and went on to provide for the workers “arriving for sleeping accommodations only” from 20 June 2009. The agreement, though brief, also contained for various covenants , including, in the usual way, that Ramsbury, as landlord, respect the “quiet enjoyment of the space occupied” by Ocean View, as tenant.

On 17 July 2009, Ocean View terminated the lease agreement and vacated the Ramsbury property, claiming it was entitled to do so because of an alleged repudiatory breach of the agreement by Ramsbury. A repudiatory breach is a breach so serious that it entitles the other party to a contract to terminate the contract immediately without penalty. Ocean View cited workers being forbidden from eating on the premises, there being no provision for drying clothing, and the air conditioning being inadequate, as evidence of breach of Ramsbury’s covenant for quiet enjoyment. Ocean View found alternative accommodation on the same day for the migrant workers at a reduced rental rate.

On 29 July 2009, Ramsbury sued Ocean View for breach of contract, claiming $280,000 for outstanding rent owed for the remainder of the term of the lease agreement. Its argument was rejected by the High Court of Justice of St Christopher and Nevis and then subsequently by the Eastern Caribbean Court of Appeal (St Christopher and Nevis), which both found that Ramsbury had committed a repudiatory breach of the lease agreement. Ramsbury made a further appeal to the Judicial Committee of the Privy Council, the final court of appeal for UK overseas territories and Crown dependencies, as well as those Commonwealth countries that have retained the appeal to His Majesty in Council, or, in the case of republics, to the Judicial Committee, but that has now been dismissed too.

The Board, comprised of five UK Supreme Court judges, assessed that rights of the migrant workers to eat and to dry clothing on-premises, and not merely to sleep, were to be implied from the lease agreement and considered evidence that suggested Ramsbury had issued directives seeking to deprive the workers of those rights. The Board said the breach of the implied terms was so serious as to be repudiatory breaches and therefore entitle Ocean View to terminate the lease agreement.

“The purpose of the lease agreement from Ocean View’s perspective, and as known by Ramsbury, was to accommodate the Mexican workers so that the hotel repair work that Ocean View was contractually bound to carry out could be fulfilled,” the judges said. “The consequence of the breach (allied with complaints about the temperature inside the accommodation) was that Ocean View was faced with general dissatisfaction among the workers and the immediate prospect of some 60 of their workers (out of 250) going back to Mexico. If Ocean View could not complete its hotel repair contract on time, it faced the prospect of having to pay substantial damages for breach of that contract and would possibly suffer other loss, for example, loss of reputation. In the Board’s view, those were sufficiently serious commercial consequences of the breach by Ramsbury as to entitle Ocean View to terminate the lease.”

“Although it is true that the workers could still sleep at the accommodation, the actual and prospective breach of the implied terms by Ramsbury went to the root of the contract. It deprived Ocean View of a substantial part of the benefit to which it was entitled under the contract … and, in the Board’s view, it also deprived Ocean View of substantially the whole of the benefit of the contract,” they said.

“The purpose of the contract, as contemplated by both parties, was for the housing of a workforce of 250 who would be working to enable Ocean View to fulfil its hotel repair contract. It was likely that that purpose would be defeated if almost a quarter of the workforce went back to Mexico as they were immediately threatening to do; and in any event the breach of the implied terms was causing more widespread dissatisfaction among the workers. Additionally, it may be that some of Ocean View’s loss would be hard to assess (for example, reputational loss) and, arguably, damages would be inadequate for that reason,” they added.

Richard Bartle said: “For many years, it was thought that the contractual doctrine of frustration, which discharges contracting parties from further performance of a contract, did not apply to leases. However, in the early 1980s the courts ultimately settled on the proposition that a lease can be frustrated, but only in exceptional circumstances. Since then, and well into the 2010s, the courts in England and Wales have, on various occasions, grappled with the issue as to whether there can also be a repudiatory breach of a lease. It is now well settled that there can be, and that follows the law in other Commonwealth jurisdictions.”

“The courts have cautioned that particular care is needed when considering whether there has been repudiatory breach by a landlord, so as not to cut across a tenant’s equitable right to seek relief from any forfeiture of the lease by a landlord. But in any event, and to slightly over-simplify, in deciding whether there has been a repudiatory breach of a lease, even by a landlord, the courts are generally as guarded and cautious as they are when considering whether a lease has been frustrated. Each thing, whilst possible, is rare in practice: it only happens on exceptional facts. This case is one of those rare and exceptional cases in which the court – in this case, the Privy Council – held that breaches by the landlord were sufficiently serious as to entitle the tenant to terminate the lease for repudiatory breach,” Bartle added.

According to Bartle, the Privy Council stressed the exceptional nature of the facts of the case, meaning that not every landlord that incorrectly restricts what tenants can do on leased land will be said to have breached the covenant for quiet enjoyment let alone entitle the tenant to terminate the lease. However, he said the decision may still be “mobilised” and “relied on” by tenants faced with a breach of their landlord’s covenant for quiet enjoyment in England and Wales, UK overseas territories, Crown dependencies, other Commonwealth countries, or jurisdictions which have adopted English common law.

“This is because the ruling provides a worked example, decided at the highest level, of a tenant being able to exit a lease without a contractual break option where the tenant alleges a breach of the covenant for quiet enjoyment or non-derogation from grant by the landlord,” Bartle said. “Claims for breach of quiet enjoyment, or the similar claim of the landlord’s covenant not to derogate from grant, can be challenging for tenants to advance in practice. As such, tenants advancing such claims often lack real leverage – i.e. the ability to walk away – if they do not have a contractual option to break the lease: in other words, the legal right to walk away.” 

“Whilst not, strictly speaking, a binding decision, decisions of the Privy Council such as this have significant persuasive authority in English law, and it would require an exceptional case for a first-instance court to depart from it. It therefore seems likely that this case may well be mobilised and relied on by corporate occupiers for years to come in claims for a breach of their landlord’s covenant for quiet enjoyment and/or the covenant not to derogate from grant, even if only to obtain leverage in the negotiations, often on the amount of a rent concession, which inevitably take place alongside such claims,” he said.

Ian Morgan added that the ruling provides important lessons for landlords.

Morgan said: “What the case shows is that when drafting contracts, including leases and heads of terms, care should be taken to fully think through and clearly document the outworkings of what is or is not intended to be permitted at the premises. In this case the phrase ‘sleeping accommodation only’ was not defined and was used inconsistently throughout the lease. It then left the parties and the courts in the invidious position of trying to decipher what this meant in the context of the particular circumstances.” 

“Whilst the courts made the point that other remedies such as forfeiture would not have provided a timeous remedy, it is worth pausing for thought to note that the facts in this case took place in 2009 and the judgment of the Privy Council was given in 2024, some 15 years later, all in the context of a seven-month lease containing a mere two recitals and six clauses,” he said.