Petrol station lease fuels dispute!

Posted: 24th December 2012

Petrol StationThe corporate tenant of four petrol stations has defeated an attempt by its landlord to take possession of the premises after a judge preferred the tenant’s interpretation of poorly drafted documents and ruled that the laandlord was not entitled to exercise break clauses under the terms of the relevant leases.

The landlord had served notices under the break clauses purporting to terminate the leases after reaching an agreement to lease the sites to a prospective new tenant. However, the High Court ruled that, on a proper interpretation of the break clauses, the conditions that enabled them to be exercised had not been satisfied.

Remarking on the ambiguous drafting of the break clauses and deeds of variation that provided for overage payments to be made to the tenant on termination of the leases, the court accepted the tenant’s arguments that the break clauses could only be exercised on a sale of the premises with vacant possession at a price above that which had originally been paid for the freehold interest.

Ruling that the tenant’s interpretation ‘makes more sense from a commercial point of view’, the court observed that the deeds of variation, comprising the right to overage payments, had been executed with the intention of protecting the tenant against the landlord’s otherwise unfettered right to exercise the break clauses.

If the break clauses were exercisable otherwise than on a sale of the premises, as the landlord contended, the overage might in practise not be payable for many years, or not at all, and the sums payable would bear no relation to the value of the premises at the time the break clauses were exercised.