Tenants need to be aware of pre-conditions in break clauses

There have been numerous articles written about the need for tenants to strictly comply with any pre-conditions attached to tenants' break clauses in to avoid the exercise of the break clause being ineffective.

However, a recent case has taken this to new extremes! In the case of Avocet Industrial Estates LLP v Merol and another, the lease included a right for the tenant to terminate the lease on a fixed date, but any notice to exercise that right would not be valid if '… at the Break Date any payment under this lease due to have been paid on or before that date, has not been paid.'

Between serving the notice and to the date the lease was to end, the tenant paid the rent late on three occasions but the rent was all paid, up to date, prior to the actual break date. As with most leases, there was a provision that if any payments were late, interest would be payable, however the landlord did not issue any demands.

Shortly after the termination date, the landlord claimed the termination was ineffective and issued proceedings against the tenant, on the basis that as some of the tenants payments were late, interest was due and therefore the tenant had not paid all payments due under the lease.

The court found in favour of the landlord. Although the landlord had not served any demand for interest, there was no requirement on it to do so. The tenant tried to claim that the landlord should not be able to rely on the interest now, having failed to raise the claim previously, but on the facts of the case the court decided that the landlord had not deliberately overlooked the ability to claim interest.

The court recognised that this was a harsh judgment, but the message for tenants is clear, look closely at any pre-conditions attached to operating a break clause, particularly if the clause requires full compliance with the lease.

In addition, in the current market, landlords who have tenants with break clauses and who therefore face the threat of empty premises could be well aware of the potential power they may have to hold a tenant to the remainder of its lease!

For commercial property advise contact DB Real Estate on either 01276 538300 or 01483 340000.