Estoppel and lease renewal negotiations

Derby & Co Ltd v ITC Pension Trust Ltd ([1977] 2 All ER 890) concerned lease renewal negotiations. The tenants had the right to a new lease under the terms of Part II of England’s Landlord and Tenant Act 1954. The Landlords were prepared to grant a new lease to the tenants. The ’54 Act provides that the new lease is to be agreed between the parties or, failing agreement, to be on such terms as appear reasonable to the court. The parties entered into negotiations on a subject to contract basis and without prejudice to the tenant’s rights under the ’54 Act. A form of lease had been agreed and was ready for execution. Then the tenants backed out. The landlords sought an order that the tenant was bound to enter into the lease on the terms and in the form that had been ‘agreed’. The landlords argued that there was now an agreement for the purposes of the ’54 Act and the court had a duty to impose that agreement on the parties. This failed because the ‘agreement’ was subject to contract and had expressly reserved the the tenant’s right to ask the court to settle the terms. The landlords sought to rely on estoppel. The basis of the estoppel is not entirely clear from the judgment. In essence, the landlord argued that it had not invoked its right to apply for an increased (‘interim’) rent during the negotiation period and, thus, the tenants were estopped from backing out of the ‘agreement’. Again, this failed because the negotiations were subject to contract:

‘It seems to me, again, that where parties negotiate on a basis ‘subject to contract’ everybody knows that there is a risk that, at the end of the day, either side may back out of the negotiations, up to the point where leases are exchanged. I do not think that a party who relies on the other side not to back out can be said to have estopped that party from backing out simply because he has not done something which he might have done in the intervening period.’ (per Oliver J. at 896)

There was no evidence that the tenants had induced the landlords not to apply for an interim rent; there was no evidence that this failure to apply was caused by any reliance on the tenants.

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