No Termination on Grounds of Own Breach

Posted: 29th July 2011

When a party to a contract breaches the contract, the other party is normally allowed to bring the contract to an end. It is not normally possible (unless the contract allows it) for the party committing the breach to terminate the contract on the ground of its own breach.
In a recent case involving a motorway service area owner and a hotel group, both sides to a proposed lease agreement were entitled to terminate the contract if the necessary planning consents etc had not been obtained by a certain date. The landlord agreed to use all reasonable to obtain them.
When the necessary consents were not obtained, the landlord terminated the contract. The tenant argued that the landlord had not used all reasonable endeavours to obtain the consents.
The court was not asked to consider whether the landlord had in fact breached its obligations, but whether it had the right to terminate the contract if it had. This, the court ruled, it could not do. The intention of the parties was the building of an hotel and the granting of a lease. The purpose of the termination clause was to enable the parties to withdraw from it if the consents could not be obtained, not to allow the landlord to breach the contract and then terminate it on the basis of its own breach.