Changing the character of a shopping mall: derogation from grant?

In Petra Investments Ltd v Jeffrey Rogers plc ((2001) 81 P & C.R. 21) L granted T a lease of a unit in a shopping mall. L originally intended that it would be aimed principally at a particular market segment (which T sought to serve). Trade at the mall was not as good as had been hoped but there were a number of reasons for this. In an attempt to improve matters, L created extra retail space within the mall and let a large part of the mall for use as a Virgin Megastore. This did not improve trade for T, in fact matters got worse. It had complained about the effect on its business of the works done to create the extra space. L granted it a service charge reduction in full and final settlement of any claim it might have arising out of the creation of the Virgin Megastore. Ultimately, T argued that the creation of the Virgin Megastore was in breach of the covenant not to derogate from grant since it gave the impression that the mall was no more than the Virgin Megastore. It argued that the breach was repudiatory and it purported to accept the breach.

Hart J. said:

‘I am inclined, however, to think that the circumstances of the grant in this case did impose an obligation on the landlord not so to alter or use the common parts of the centre in such a manner as to cause it to lose its character as a retail shopping mall.’ ([53]).

He doubted whether there was any more specific implied obligation (as to the nature or mix of tenants). The decision to let a large part of the retail space to a single retailer ran the risk of breaking this covenant. The defendant’s agreement not to make a claim in respect of the creation of the Virgin Megastore meant that it was unable to pursue this claim. The judge seemed to doubt whether there was a breach in any event since a shopping mall, however small, still remained ([55]).

The judge also said that a construction of the lease terms that would oust the operation of non-derogation in its entirety should be rejected.

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