UK: Implied Terms And Entire Agreement Clauses

Last Updated: 1 October 2018
Article by Clyde & Co LLP

Most Read Contributor in UK, November 2018

In the March 2018 case of J N Hipwell & Son v Szurek [2018] EWCA Civ 674, the Court of Appeal held that a term should be implied into a lease requiring the landlord to keep the electrical installations for the premises safe and certified despite the fact that the lease contained an entire agreement clause.

Background

A tenant of café premises brought a claim against her former landlord for losses she had suffered as a result of her being forced to close her business due to issues she had been experiencing with the electrical wiring in the premises.

The lease was silent upon which party was responsible for the repair and maintenance of the electrical installations and it contained a standard entire agreement clause (as well as a non-reliance clause in respect of any pre-contract representations made by the landlord).

The tenant claimed that, prior to the grant of the lease, the landlord had falsely or negligently represented that the electrical wiring had passed a safety inspection and, as a result, she was entitled to rescind the lease. In the alternative, she alleged that the landlord was in repudiatory breach of an implied term that he would be responsible for the maintenance and/or repair of the electrical installations and that she was entitled to accept the repudiation.

At first instance, the Judge found that, before the tenant signed the lease, the landlord had represented to her that the electrical wiring had been completed and certificated. The Judge also held that the parties had intended for the landlord to be responsible for the safety of the electrical installations, their inspection and certification and that a term should be implied into the lease to reflect this shared understanding. The landlord was in breach of this implied term of the lease and, in the alternative, the tenant had relied upon the landlord's representations as to the safety of the electrical installations. The tenant was entitled to accept this repudiatory breach and vacate the premises.

The decision

The landlord appealed on a number of grounds, including that:

  1. The Judge failed to give effect to the entire agreement clause in the lease; and
  2. The Judge was wrong to imply a term that the landlord "would keep the electrical installation safe" as it was contrary to the express terms of the lease and was not essential for the efficacy of the agreement.

Although the Court of Appeal did not agree with the first instance Judge's reliance upon the parties' "true intentions" as the basis for implying the relevant term, the Court held that a term should be implied to the effect that the landlord would be responsible for the safety of the electrical installations.

The Court noted that it is well established law that a term may be implied where it is necessary to give business efficacy to a contract. Applying the principles identified in Marks & Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742 and another, the Court firstly considered whether any express provisions of the lease covered this point. The Court noted that the lease "is an oddly balanced document, imposing on the tenant far more extensive covenants than upon the landlord" and that "the lack of any express obligations in respect of either the exterior of the Premises or the plumbing and electrical supply and installations is an obvious gap inconsistent with the objective intentions of the parties" which were apparent from both the landlord's evidence and the other terms in the lease.

To ensure that the lease did not lack commercial or practical coherence, the Court of Appeal held that, as a matter of business necessity, a landlord covenant should be implied to the effect that the electrical installations were safely installed and that they would continue to be covered by a safety certificate. The landlord had already conceded (correctly, in the Court's opinion) that an entire agreement provision does not affect or prevent the implication of a term which is to be implied on the grounds of business efficacy. Consequently, the entire agreement clause did not preclude the implication of the term to give business efficacy to the lease.

Comment

Whilst this case was decided upon its facts, it is a reminder that careful drafting is required to ensure that the terms of a contract accurately reflect the parties' intentions. It also illustrates that an entire agreement clause will not prevent a term from being implied into a contract if it is necessary to give business efficacy to the contract in question.

The article first appeared in our Real Estate Bulletin - September 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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