Oliver Morris, from our Commercial Property team, looks at how a recent case involving a fire in a café highlights the risk of leaving responsibility gaps in a lease – and brings ‘entire agreement’ clauses to attention.
Mrs C Szurek was commercially renting a property – to use as a café – from JN Hipwell & Son. She’d signed a lease for a term of three years. But, within a year, an electrical fire – and other electrical mishaps – meant she had to stop trading at the premises. She gave JN Hipwell notice that she wanted to terminate the lease.
After these incidents, an electrician inspected the property, and told the JN Hipwell that the electrics were unsatisfactory – and, in part, dangerous. But, JN Hipwell didn’t pass this information on. In fact, he told Mrs Szurek that there were no issues.
In Court, Mrs Szurek argued that she’d entered the lease on the basis that the electrics were safe. She also argued that a term should be implied into the lease specifying that JN Hipwell was responsible for their maintenance and repair.
The Court rejected her first argument, because the lease excluded liability for any representation JN Hipwell made to her prior to it – unless they were fraudulent. There were difficulties with the second argument, too. The lease contained a clause stating, ‘this agreement constitutes the entire agreement’ between Mrs Szurek and JN Hipwell (to stop either side claiming that other collateral documents contain additional terms).
But, the Court decided that, despite the entire agreement clause, a term could be implied into the lease on the grounds of ‘business efficacy’. The lease had a responsibility ‘gap’. Someone had to be responsible for the electrics at the property – so the Court decided that it was JN Hipwell.
This case shows how careful both landlords and tenants need to be when drafting and reviewing leases, so they’re not landed with any unwanted responsibilities. Nobody wants the uncertainty of the Court implying terms into a lease, so it needs to be clear from the start.
The Court did comment that the ‘business efficacy’ principle should be used with strict restraint – but the decision is still a surprising one.
If you’d like us to review any of your leases for any possible responsibility gaps, please get in touch.