Break Notices – it pays to get them right!

Author: David Linklater

The current economic climate has seen a number of commercial tenants looking to reduce overheads and a popular way of doing so is by disposing of unwanted premises.  Many leases contain break clauses allowing early termination by a tenant and these are becoming increasingly exercised.  Landlords, of course, will often seek to challenge a defective break notice, so it is essential to serve a break notice in accordance with the requirements of the lease.

The recent case of MW Trustees and others v Telular Corporation highlighted the potential pitfalls that can be encountered in exercising a break clause.

In that case, the tenant prepared and served the break notice itself, unfortunately addressing and sending the notice to the original landlord, rather than its current landlord.  The original landlord informed the tenant that the property had been transferred and the tenant emailed the new landlord a copy of the break notice that had been sent to the original landlord.

The new landlord’s managing agent sent an email to the tenant, saying:-

“We accept the attached letter and can confirm that we are happy for you to break the lease, however, please could you re-address this letter to [the new landlord]”

On the same day, the new landlord sent an email to the tenant, asking for details of the subtenant and asking when the lease would end.

The tenant failed to re-serve the break notice and at the break date, the landlord argued that the tenant had failed to properly exercise the break.

In addressing the break notice to the wrong landlord, the tenant had clearly failed to properly serve the break notice and in most cases, the lease would simply continue.  In the current case, however, the tenant successfully argued that the emails from the managing agent and landlord  respectively combined to demonstrate that the landlord had waived the invalidity of the break notice and accepted that as a result the lease would end.

Whilst the tenant must have felt incredibly relieved at the outcome of this decision, it was saved by the actions of the landlord and the managing agent, rather than through any action on its own part.  The tenant clearly had a very lucky escape – most recent cases that have been before the courts on this point have been decided against the tenant.

The above demonstrates the importance of careful drafting of break notices.  Mistakes can be incredibly costly.  In addition to ensuring service by and to the correct party, it is important to ensure that all conditions of a break clause are met.

For further information about our Property Litigation services or to discuss a particular matter or situation in more detail, contact David Linklater at our St Albans office by email at david.linklater@salaw.com or on 01727 798000.

© SA LAW 2011

Every care is taken in the preparation of our articles. However, no responsibility can be accepted to any person who acts on the basis of information contained in them. You are recommended to obtain specific advice in respect of individual cases.