Case 2 - Negotiations for renewal of a lease

Summary

Case 2

B was A's tenant under a three-year lease of a warehouse; the lease was due to come to an end at the end of 1999, and in July 1999 the parties began negotiations for the renewal of the lease. Before opening negotiations with A, B had explored the possibility of moving to another warehouse, and had found a possible alternative warehouse which he could have rented from X, but since it was at the same rent and would have involved expenses in moving to the new warehouse, he told X that he was not interested in concluding that lease. Earlier in 1999, A had already decided to sell the warehouse, in order to realise its capital value, and had begun negotiations with C for the sale which continued alongside the negotiations with B for the lease renewal. As A knew, C intended to buy the property with a view to leasing it to another company, D, but to induce C to pay a higher price, A started and continued the negotiations with B in order to demonstrate the potential profitability of the warehouse by way of rental income. During the negotiations B continued to use the warehouse as a major distribution point, and made no further effort to find an alternative warehouse. One week before the end of the lease, A told B that he was not prepared to renew the lease, because he had agreed to sell the warehouse to C; and that C would not be offering to grant a lease because he would be leasing it, from 1 January 2000, to D. The evidence of the negotiations with B for the renewal of his lease induced C to pay a significantly higher price than A could otherwise have expected to have received for the warehouse.