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National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675

Lease of warehouse; local authority closed access road; whether lease frustrated

Facts

National Carriers Ltd (NCL) granted Panalpina a 10-year lease of a warehouse. The sole means of accessing the warehouse was via a road which was closed by the local authority for 20 months, because a neighbouring property was in a dangerous condition. Panalpina were thereby prevented from using the premises for that period, and they failed to pay rent. NCL brought an action to claim the unpaid rent.

Issues

Where external factors operate to prevent contracting parties from performing their obligations under the agreement, the doctrine of frustration operates to discharge the parties from further performance. Panalpina argued the closure of the access road rendered the warehouse unusable and, therefore, the lease was frustrated and they were not under a duty to pay rent. They sought a declaration that the agreement had become frustrated and should be discharged. NCL contended the legal estate in land had passed to Panalpina and, therefore, the risks and benefits of the land had passed with it. Panalpina could protect themselves from risk by purchasing insurance. To apply the doctrine of frustration to leases would prejudice third party interests and, even if frustration were to apply to leases, it should only apply where there is complete destruction of the land itself.

Held

The lease had not been frustrated. The doctrine of frustration was, in principle, applicable to leases in exceptional circumstances. Although a lease is more than a simple contract because it creates an interest in land, this does not preclude the possibility of the doctrine applying to leasehold agreements. The interruption of 20 months in a 10-year lease was not significant enough to destroy the entire contract and, therefore, Panalpina were obliged to pay rent for the full term.


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