In a recent case, the High Court implied under a lease a term that rent be refunded to a tenant following the successful exercise of a break option .
More recently, the High Court has been asked to consider whether a repairing covenant can be implied in a lease.Implied terms are often the subject of dispute between parties where the contractual terms do not cover an unexpected situation that has arisen.
What principles will a court consider when asked to imply a term into contract?
Where a court is asked to decide whether a provision should be implied into a contract, it will consider whether that provision would spell out in express words what the contract, read as a whole against the relevant background, would reasonably be understood to mean.
This principle highlights that the Court will not rewrite the contract made between the parties. However, the Court may imply a term on the grounds that, without it, the contract will not work; or because the implied term is necessary to give effect to the reasonable expectations of the parties.
A term may also be implied if it would have been so obviously a term of the agreement that both parties must have intended it to form part of their contract.
In Gavin and Another v Community Housing Association Ltd (2013), the claimants were commercial tenants of ground floor and basement premises in a building.
The leased property included the internal plaster, ceiling and floor coverings, the doors and windows, and all conduits within the premises. The tenants covenanted to repair their demise. The landlord retained the structure and upper parts of the building.
Crucially, the lease did not contain a covenant requiring the landlord to repair the upper parts of the premises, but it was required to insure the whole building and, if the premises were damaged or destroyed by an insured risk, to lay out insurance monies in making good that damage.
There were several leaks which damaged the tenants' premises due to defects in the remainder of the building. The landlord undertook repairs, paid for from monies paid out under the landlord's insurance. The tenant was nonetheless aggrieved due to alleged loss of business and sought damages from the landlord.
The landlord argued that it had no liability to the tenant beyond laying out insurance proceeds to repair the damage, which the landlord had done.
The tenant contended that the landlord was under an absolute duty - under an implied obligation in the lease - to repair the upper parts of the property which it retained.
In deciding the case on appeal, the Court of Appeal applied the principles set out above and held that to imply a repairing obligation on the landlord would be to improve the contract from the tenant's point of view.
The landlord had no duty to repair the retained parts, and had laid out the insurance monies in accordance with the terms of the lease.
The Court of Appeal distinguished its earlier decision in Barrett v. Lounova , in which it held that there was an implied covenant on the landlord to repair the exterior of the premises.
In that case, the tenant was under an obligation to keep the interior of the demised premises in good repair. There were no covenants by either Landlord or tenant in relation to the external structure. In those circumstances the Court implied a covenant on the landlord to repair the exterior on the basis that, without it, the tenant would over time find it physically impossible to comply with its own covenant. In such circumstances the implication of the repairing obligation was justified. However in Gavin the tenants had the protection of the landlord's insurance obligations (which the landlord has observed). On this basis Barrett v. Lounova was distinguished.
The decision in Gavin stresses the importance of clarity in the drafting of lease terms. This is particularly the case where the ability of a tenant to undertake its business could be adversely affected should adjoining premises, which are retained by the landlord, fall into disrepair.