Endeavouring to EndeavourAugust 15, 2016
Most obligations placed upon a landlord and tenant in a lease are clear, certain and absolute. It is the case however that leases will often contain other obligations requiring a party to “endeavour” to achieve something and this can lead to uncertainty as to just how far a party has to go in order to satisfy that obligation.
There are 3 levels of “endeavours” obligations and the difference between these terms can be unclear. The case law that has built up over the years confirms that the extent of the obligation depends on the facts and context of each case but in general terms these are as follows:-
This is clearly the most onerous and should be avoided wherever possible. In this instance the obligor must take all reasonable steps in its power to achieve the result which may require it to act outside of its commercial interests even incurring significant expenditure. It can even include an obligation to take court proceedings if necessary to achieve the relevant outcome
This generally requires the obligor to take one reasonable course of action. Whilst limited expenditure may still be necessary the obligor should not have to satisfy its sacrifice its commercial interests.
All reasonable endeavours
This is described by some as being halfway between “best” and “reasonable” endeavours. Although it possibly leans more towards best endeavours. In this instance expenditure may be required by the obligor but the degree of sacrifice of the obligor’s commercial interests should be far less.
Looking at each of these in more detail the following can be recognised
Whilst not akin to an absolute obligation this obligation is more onerous than a reasonable endeavours obligation
A best endeavours obligation is qualified by a test of reasonableness
Satisfying a best endeavours obligation does not require a party to take steps that would bring about its bankruptcy, or to continue in accordance with a course of action which would lead to the “certain ruin of the company or to the utter disregard of the interests of shareholders”
The obligor should probably exhaust all of the number of reasonable courses which could be taken in any situation to achieve a particular aim
Such an obligation can require the party under the obligation to invest and take the risk of success or failure (for example, proceeding to litigate), but only where there is a reasonable prospect of commercial success.
Such an obligation can be qualified by other duties such as a duty of directors to act in the best interests of the company
A reasonable endeavours obligation does not require taking an action in so far as it disadvantages the obligor. This is, however, subject to the important exception that if the contract specifies that certain steps have to be taken in performance of the obligation these steps must be taken even if they involve the sacrificing of a party’s commercial interest. There may also be an obligation to litigate subject to the costs and the likelihood of success
Such an obligation requires the obligor to take only one reasonable course in a given situation to achieve a particular aim but not to exhaust all of them.
This obligation has been defined by reference to an objective standard of what an ordinary competent person might do in the same circumstances and allows commercial consideration to be taken into account (for example, relationships with third parties, the reputation of the obligor and the costs to be incurred by the obligor).
All Reasonable Endeavours
This remains the most nebulous of the three obligations, possibly because it is thought of as a compromise between the other two.
Such an obligation does not necessarily equate to a best endeavours obligation. In the context of the number of courses of action a party must take, however, there is some alignment between “all reasonable endeavours” and “best endeavours” (for example as is the case with best endeavours it appears that an all reasonable endeavours clause” requires you to go on using endeavours until the point is reached when all reasonable endeavours have been exhausted”). These concepts may however be distinct in terms of the commercial sacrifice an obligor has to bear
This obligation does not always require the obligor to sacrifice his commercial interest
The analysis of what is required to satisfy such an obligation will very much depend on the commercial context in which it appears in a contract or lease
There are a number of steps which should be considered when incorporating any of these obligations into a contract or Lease.
Try to add certainty by setting out exactly what an obligor is required to do (or not to do) to satisfy the obligation (for example the obligor must make at least 3 planning applications). In some circumstances this may be difficult (for example, in relation to future and ongoing obligations). Where that is the case, to avoid being too prescriptive and limiting the scope of the actions an obligor is required to undertake it would be preferable, where possible to use a formulation along the lines of [best] [all] [reasonable] endeavours including but not limited to; [specific actions] in a similar way to how, for example a force majeure is often formulated.
If the obligor is required to pay particular costs or incur expenditure to satisfy the obligation you should consider including monetary caps or minimum spend thresholds
You should state explicitly for how long an obligor should be required to pursue a certain course of action to satisfy the obligation and after what period of time a party will be able to “give up” without risking a claim for breach of the endeavours obligation
If it is envisaged that the obligation may entail taking legal action you should specifically provide for legal action (and subsequent appeals) to be undertaken to satisfy the objective.
If it is the case that a particular action is absolutely essential to a transaction the best course of action to avoid any uncertainty would be to insist upon an absolute obligation in the contract.
Clearly, careful consideration should always be given as to the wording of the various obligations imposed upon the parties in contracts/leases.
This article is for information purposes only and any specific queries should be addressed to a member of our Property Department for further and specific legal advice.