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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.

Held

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.


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