High Court victory for client in property dispute

Harrison Drury has obtained an injunction in the High Court in Birmingham to prevent a winding up petition filed against one of its clients following a commercial property dispute.

The client, a multi-million pound European property investment company, based in Holland, had been served a statuary demand by one of its tenants following the misinterpretation of a break clause in a contract between them.

The company owns a commercial unit in Telford which it let to a tenant under a ten year lease with a break clause at year five. One of the conditions of that break was that all rent due under the lease was paid up to date as at the break date. The unusual aspect to this was that the break date was the same as the rent quarter date.

After the tenant served a break notice under the lease, our client misinterpreted the break clause and issued an invoice for one day’s rent, even though a full quarter’s rent was due and payable. In the event the tenant took its own legal advice and paid a quarter’s rent to ensure the break was properly exercised.

Subsequently the tenant demanded a refund of the balance of the rent due and instructed solicitors to issue a letter of claim for the money. This was done on the basis that an estoppel had arisen, and/or an agreement to repay the rent made, evidenced by the invoice and the subsequent exchange of correspondence when our client had initially indicated an intention to repay, based on its previous understanding of the clause.

We advised our client that there was no estoppel because the tenant had effectively ignored the invoice by paying the rent in full and there was no agreement to repay the rent.

Between taking instructions from our client and drafting the letter in response, the tenant served a statutory demand against our client. The tenant refused to withdraw this statutory demand despite the fact that there was a substantive dispute over whether an agreement to refund the rent existed.

This statutory demand meant that our client was at risk of being wound up, despite having assets of in excess of £80 million, and at the very least would face having its accounts suspended and serious damage to its commercial reputation.

We therefore issued an application without notice to restrain the presentation of a winding up petition, which was granted temporarily.

The tenant opposed the application at a final hearing before HHJ Purle QC. However, the judge dismissed the tenant’s case out of hand.

Not only did he find that there was a substantive dispute, the judge also observed that there was no evidence of any agreement to repay the rent as alleged by the tenant. The judge ordered the tenant to pay £16,161 in costs.

This case highlights the consequences of misusing the statutory demand procedure and threatening insolvency where a substantive underlying dispute exists.

It also highlights the care that needs to be taken when exercising a break clause, due to the fact that they will be enforced strictly by the court, even when the parties have misinterpreted their meaning.

For more information on this matter, or any other commercial disputes your business is involved in, please contact Colin Fenny on Colin.Fenny@harrison-drury.com or 01772 258321.