## Facts

- National Carriers Ltd leased a warehouse to Panalpina (Northern) Ltd for a term of ten years.
- The only access road to the warehouse was closed by local authorities for about 20 months due to an adjacent building being unsafe.
- Panalpina claimed that the lease was frustrated and sought to stop rent payments for the period during which access to the warehouse was blocked.

## Issues

1. Whether the doctrine of frustration applies to commercial lease agreements.
2. Whether the 20-month closure of the access road constituted frustration of the lease, relieving Panalpina of its obligations, including rent payments.
3. What standard or test should determine if a supervening event frustrates a lease.

## Decision

- The House of Lords affirmed that the doctrine of frustration can, in principle, apply to commercial leases, although its application is rare due to the nature of property rights.
- The Court held the lease was not frustrated; the 20-month closure was insufficient relative to the ten-year lease term to fundamentally change the nature of the contract.
- The Court emphasized that a much higher threshold must be met to establish frustration in leases and that only a situation “radically different” from the intended agreement could do so.

## Legal Principles

- Frustration in contract law releases parties from their obligations when an unforeseen event makes performance impossible, illegal, or radically different from what was agreed.
- In leases, property interests and the intended duration mean the threshold for frustration is considerably higher than in ordinary contracts.
- The “radically different” test (from Davis Contractors Ltd v Fareham UDC [1956] AC 696) governs frustration: hardship or inconvenience is insufficient; the contract must become fundamentally different.
- Foreseeability reduces the likelihood of successful frustration claims, as parties are expected to allocate risks within the contract where possible.
- Force majeure clauses are recommended to expressly allocate risks relating to unexpected events in commercial leases.

## Conclusion

The House of Lords in National Carriers Ltd v Panalpina (Northern) Ltd clarified that frustration may apply to leases but only in rare circumstances where a supervening event makes performance radically different; here, the lease was not frustrated, affirming the importance of clear contractual risk allocation in property law.


National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675