Long Read: Time and Termination
28/05/2026
James Griffiths, Trainee Solicitor for Gateley Legal, and Edmund Locock, Senior Associate for Gateley Legal, write: They say that the secret to a good joke is timing. The same is true, we say, of asset finance agreements.
In Lombard Central Plc v Butterworth [1987], however, Mr Butterworth certainly wasn’t laughing. His problem was not that he failed to pay at all, but that he failed to pay punctually. Under a hire agreement where time was expressly of the essence, that failure to make timely payment was enough to entitle Lombard to terminate, and to recover both the arrears and future rentals due under the agreement as a debt - a right the Court of Appeal confirmed.
In asset finance, Lombard v Butterworth expressly confirms in which circumstances late payment of contractual rentals constitutes a repudiatory breach, allowing the funder to (i) terminate the agreement, and (crucially) (ii) recover not just the arrears, but also future rentals, as a debt.
“Punctual payment is of the essence of this agreement.”
The crucial difference between terms and conditions is that breach of a condition – which goes to the heart of a contract – is repudiatory, allowing the injured party to terminate the agreement and claim not just contractual damages (i.e. arrears) but also compensation for their loss of the bargain.
For “time of the essence” clauses in asset finance products, that’s exactly what happens. When time is “of the essence”, payment deadlines become fundamental to the contract - a term becomes a condition.
With such a condition, late payment of rentals, no matter how slight, amounts to a repudiatory breach of contract. In other words, if a customer breaches a lease by defaulting on a single rental payment, the lessor can accept the breach as repudiatory and terminate the contract there and then.
Without such a condition, funders are restricted to claiming contractual damages for breach of contract.
Timing is everything
On the face of it, punctual payment as a condition of all asset finance agreements may seem draconian. One late payment entitles a funder to terminate, recover their assets, and to claim any arrears plus future rentals as a debt.
That’s certainly the view taken by the Court of Appeal which, despite finding in favour of Lombard, voiced its dissatisfaction that a drafting technique (specifying that time was of the essence) had achieved a result which the law of penalties might otherwise have prevented them from achieving.
It is important to remember, however, that (in order to avoid constituting a penalty) properly drafted asset finance agreements will (i) include a discount for accelerated receipt of any future rentals, and (ii) provide for any net sale proceeds of the equipment hired – if any – to be set off against the termination sum.
Funders take the risk when entering into asset finance agreements, not least by paying outright for the equipment hired and by allocating capital which would otherwise be used for non-defaulting agreements. Funders don’t make a profit from termination sums: they are simply designed to restore the funder to the position it would have been in had the agreement run to term.
Termination
Following termination, an agreement in the eyes of the law and, much like the Norwegian Blue (beautiful plumage, I hear), has ceased to be. It is (legally) dead.
It is not impossible to re-write an agreement post-termination. However, although the agreement may look, walk and talk like the original, it will be an entirely new contract.
If, following termination, a customer continues or re-starts making payment of rentals, funders should be clear as to the basis upon which any such payments are being accepted: either under a formally re-written agreement, or as part-payments only towards the termination sum due.
It is not unheard of for funders to accept further payments, and to continue as if the agreement has survived termination. Unfortunately, once terminated the agreement is no more, and doing so risks jeopardising future recoveries if/when such payments stop.
Lombard v Butterworth endures because it cements a simple truth about asset finance: punctual payment as a condition is fundamental to the effective, and enforceable, drafting of asset finance agreements rather than just good commercial practice. It is a contractual must-have.
-- This is a shortened and edited version of the full article which appeared in issue 217 of Leasing World magazine
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