Tenant Terminates Lease for Landlord Breach

The recent Privy Council case of Ramsbury Properties Ltd v Ocean View Construction Ltd highlights the fact that, if either a landlord or tenant breaches the terms of its lease, the aggrieved party can argue that the lease should come to an end as a result. This is called a repudiatory breach of contract.

Repudiatory breach of contract

Repudiatory breach of contract is often associated with general commercial contracts, where one party has the right to choose either to end the contract, or to affirm it if the other party commits a serious breach.

In this recent case, the Privy Council has set out a useful summary of the law regarding repudiatory breaches of contract, specifically in the context of the termination of a lease.

The case: Ramsbury Properties Ltd v Ocean View Construction Ltd

The claimant, Ramsbury Properties Ltd, was the landlord, and Ocean View Construction Ltd was the tenant of a seven-month lease of premises to provide accommodation for 250 migrant workers employed on a repair project at a hotel. The monthly rent payable was US$56,000.

The lease provided for ‘sleeping accommodation only’. A dispute arose between the tenant’s building workers and the landlord. The landlord prevented the workers from eating meals or doing laundry on the premises. The workers also argued that there was inadequate air conditioning at the premises.

This created general dissatisfaction among the workers, and this resulted in around 25% of the migrant workers leaving the project, and the risk that the tenant might not be able to complete its repair contract on time.

The landlord argued that the user clause in the lease did not permit these additional uses at the premises, and the tenant argued that the landlord was in repudiatory breach of the terms of the lease by preventing quiet enjoyment of the premises by refusing the tenant’s workers the ability to use the premises as claimed.

The landlord issued a claim against the tenant for specific performance of the lease, and damages for breach of the lease terms in the sum of US$280,000. The tenant argued that the landlord’s action amounted to a repudiatory breach of the lease and, as a result, elected that it had come to an end.

Decision of the Privy Council

The Privy Council looked at whether the landlord’s actions amounted to a repudiatory breach entitling the tenant to terminate the lease. It considered that the absolute right to exclusive possession under a lease, especially where the lease is long-term, means that it may be rare for there to be a sufficiently serious breach of a lease, entitling the tenant to terminate.

On the particular facts here, the Privy Council considered that the lease was a short-term let (of seven months) and the breaches were sufficiently serious, given the landlord had banned the occupiers from these ancillary uses (eating meals or doing laundry on the premises). It was therefore held that there had been a repudiatory breach, entitling the tenant to terminate the lease.

Key take aways from the case

Where one party commits a breach of condition which deprives the other party of substantially the whole benefit of the contract (or lease), the breach is likely to be repudiatory, which could result in a termination of the lease.

The length of the lease, and the impact of the breaches on the injured party, will be key considerations when looking at whether the breaches complained of could be repudiatory in nature.

As is usually the case, considering whether a breach is repudiatory in nature will very much depend on the facts and circumstances of each matter.

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