"OF STRAWS AND CAMEL'S BACKS" — FUNDAMENTAL BREACH OF LEASE

Abstract

Occasionally, the determination of a case gives rise to a significant rethinking of long accepted conventional wisdom and results in a hasty review of many standard precedents. Such a case was Shevill v. The Builders Licensing Board. The facts were relatively uncomplicated. A lease provided that if rent was unpaid for 14 days or if the lessee was in breach of any covenants (or if certain other events occurred (such as bankruptcy or liquidation), then the lessor might re-enter the land 'without prejudice' to any action or other remedy the lessee has or might or otherwise could have had for arrears of rent or breach of covenants or damages as a result of any such event. During the entire period the respondent lessor was owner of the land, the lessee was consistently late with payments of rent which were so accepted and sometimes only in part. During a five month period preceding recovery action by the lessor, the lessees' account was chronically in debit and three rental cheques were dishonoured. The inference from the lessees' conduct was that while they were financially unable to meet the rental payments as they fell due they were not generally unwilling to comply with their obligations to do so. It was merely a matter of consistent late payment of rent. The respondent lessor gained possession of the demised premises upon an order being made at a time when the rent was two months in arrears. Upon possession being resumed, the lessor claimed the two months rent, damages for breach of covenants of the lease and interest. The arrears totalled some $5,442.00 and these were paid. However, the trial judge entered judgment for $41,261.00 being damages assessed upon the amount which the respondent lessor would received by way of rent during the remainder of the term, less credit for the rent which it was able to receive during that period. The question for determination in the appeal was whether the lessee was liable for the damages for loss of bargain at all. The High Court held that the conduct of the lessee had not evinced an intention not to be bound by the lease, and the failure to pay rent, in itself, was not such a breach of a term going to the root of the contract to make further performance impossible. Without more, as Gibbs C.J. said, the covenant to pay rent in advance at specified times would not be a fundamental or essential term having the effect that any failure, however slight, to make payment at specified times would entitle the lessor to terminate the lease and sue for damages for loss of the bargain. His Honour did say, however, that any contract may stipulate that a term will be treated as having a fundamental character, although, in itself it may seem of little importance5 so that a right to forfeit a lease might arise 'in the case of any breach of covenant, however trifling, if the parties had agreed that a breach of covenant should create a forfeiture'.In other words, a lease was to be construed as every other form of contract and meet the test of essentiality of conditions after considering the agreement as a whole. Why, therefore, had there been such confusion in the past regarding the proper construction of leases?