When is a Breach Not a Breach?

Virtually all contracts contain provisions which allow the parties concerned to cancel the contract in the event that the other party breaches it. However, with many contracts being complex and imposing a variety of obligations of varying importance on the parties to the agreement, the courts will fight shy of concluding that a minor breach is sufficient to terminate a contract altogether.

Recently, retailer Debenhams and the landlord of a proposed new store were in dispute over their contract. It provided that the landlord would pay Debenhams a reverse premium of £900,000 in three tranches of £300,000. The first tranche was due when contracts for the lease were exchanged. That was paid. The second tranche was payable when the premises were ready to be outfitted.

The landlord had problems with the builder contracted to construct the building and informed Debenhams that the second tranche would be delayed. It proposed alternative arrangements, such as an extended rent-free period. The landlord made it clear that it was committed to the project.

When it failed to make the second payment in time, Debenhams claimed the landlord had breached the contract, relying on a clause which implied that any breach of the various obligations was sufficient to terminate the contract.

In court, Debenhams argued that the failure to pay the second tranche on time was a ‘repudiatory breach of contract’ and entitled them to terminate the agreement.

In the court’s view, the breach was insufficiently severe to allow Debenhams to terminate the contract. The contract contained a clause which specified how interest was to be calculated in the event that a payment was made late: that was sufficient compensation for the late payment.