Had a prospective tenant validly terminated an agreement for lease?

The litigation in Reaction Engines Ltd v BNP Paribas Depositary Services (Jersey) Ltd [2021] EWHC 753 (Ch) concerned an agreement for the construction and letting of a building and engine testing facility, which the company, an aerospace manufacturer, planned to use to conduct research into space propulsion systems. The construction work was to be carried out by a third-party contractor and, on completion, the company would take a 10-year lease for an initial rent of £324,100 pa. BNP was to use its reasonable endeavours to ensure that the work was practically complete by 13 September 2018 (although the parties subsequently agreed to extend the target date to 1 November 2018). And, in the event that practical completion had not occurred on or before 13 September 2019, the company had the right to terminate the agreement by notice in writing served at any time thereafter (unless practical completion had occurred prior to the issue of such notice). The building was ready on 25 September 2018. But the engine testing facility ran into construction difficulties and the longstop date came and went. Even so, the parties continued to engage with each other with a view to ensuring that practical completion could be achieved and the company continued to press for steps to be taken to achieve that goal – before serving a notice terminating the agreement on 18 March 2020, without having issued any prior warning or ultimatum to BNP. BNP claimed that the company had promised or represented, by its conduct, that for so long as the parties were seriously engaged, and working together with a view to completing the work, the company would not exercise its right to terminate without first giving reasonable notice to BNP. So the company sought a summary judgment in its favour – and the High Court upheld its claim. The judge ruled that a defence based on equitable forbearance could succeed only if the company had made clear and unambiguous representations that it was prepared to circumscribe the benefit of the carefully crafted protections in the agreement for lease. No representation or promise was needed to induce BNP to continue working towards practical completion. The agreement placed it under a continuing obligation to use its reasonable endeavours to complete the work as soon as reasonably practicable, even if practical completion had not taken place by the longstop date – thereby exposing BNP to the risk that the company could opt to terminate the agreement for lease before practical completion could be achieved. And a notice of rescission could, in theory, be delivered shortly before the work was due to be completed. So the company would derive little benefit from making a representation or promise of the kind for which BNP was arguing – and that, of itself, was a powerful reason why its conduct should not be regarded as such. Letters from the company’s solicitors had made it clear that the company reserved its right to terminate the agreement. And the company’s behaviour was entirely consistent with the flexibility offered by the agreement; its participation in attempts to complete the work was consistent with it retaining the right to terminate at any time while, at the same time, hoping that practical completion could be achieved sufficiently soon, so that it would not need to exercise its right.   Allyson Colby is a property law consultant