Author: David Linklater

The recent case of Avocet Industrial Estates LLP vs Merol Limited [2011] EWHC (Ch) has imposed an additional burden on commercial tenants wishing to exercise a break option.

Avocet was a commercial tenant and served a break notice to terminate its lease.

The break right, as is often the case, was conditional and required Avocet to pay all rent and “other sums” due under the lease.  It also had to pay a premium.

The tenant paid the premium by cheque, which was delivered to the landlord one day before the break date.  The tenant had a history of paying rent late and the lease provided that the tenant should pay interest on late payments.
Whilst the landlord had indicated that it wanted interest to be paid, it had not invoiced for interest.  The tenant had dismissed the landlord’s request for interest as “silly”.

The tenant vacated the premises and handed it back on the break date.  The landlord refused to accept that the tenant had validly exercised the break, arguing that the premium was not “paid” when the cheque was received (as it had not cleared), and the interest on late cheque payments should have been paid as well.

The disputed interest was approximately £130.

The Court found that the supply of the cheque meant that the premium had been “paid”, as there was an implied agreement that payment could be made by cheque.

However, interest should have been paid as well and therefore the break notice was ineffective and the lease continued.  This was the case even though the landlord had not invoiced for the interest because the lease stated that interest was “payable” regardless of whether or not a formal demand had been made.

As a result of the failure to pay the £130 interest, the tenant now finds itself in a lease that is does not want, which in theory will result in a liability in excess of £300,000.

The break clause in Avocet was not unusual and the provisions regarding interest are also commonplace.  This scenario will affect tenants who have throughout the course of a tenancy paid any sums by cheque, or been at all late in making any payments to the landlord.

A failure to pay any interest due could therefore potentially invalidate a break.  The key to this is in the wording of the lease and if in doubt, legal advice should be sought.

If you would like more information or advice relating to a specific matter, please do not hesitate to contact David Linklater on 01727 798097 or by email at david.linklater@salaw.com or any member of the Property Litigation Team.

© SA LAW 2012
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 case.

Author: David Linklater

As I have mentioned in a recent blog, break clauses are often tricky to operate and a tenant may have to meet certain conditions in order to ensure that the break option has been validly exercised.

A condition sometimes found in break clauses is that the tenant must on the break date give to the landlord vacant possession of the premises.  Whilst this sounds a simple enough proposition, sometimes tenants do fall foul of this requirement.

The Court of Appeal was called to rule on such a situation in the recent case of NYK Logistics (UK) v Ibrend Estates BV.

The facts of the case are straightforward.  The tenant served a break notice and one of the conditions of the break option was that the landlord was to be given vacant possession on the break date.  The tenant commenced works to put the premises into the condition required by the lease, but as the break date approached, it became apparent that the works would overrun.

At that stage, the tenant entered into discussions with the landlord, seeking permission to remain in occupation until the works were completed, without prejudicing the break right.  No agreement to that effect was reached.  On and after the break date, the tenant remained in occupation of the premises, still had keys and had security guards in place, and had not cleared the premises of its belongings.

The tenant believed that the lease ended on the break date, claiming that by entering into negotiations with the tenant, the landlord had waived the requirement for vacant possession.  The landlord stated that it was never its intention to waive the requirement.

The case served as a useful reminder of the questions that the Court will ask when considering compliance:

•    Was the party that was required to give vacant possession still actually using the premises for it own purposes?

•    Is the physical condition of the premises in such a state that there is no substantial impediment to use of the premises, or a substantial part of it, by the party taking the premises?

The Court of Appeal found that the tenant had taken no steps to comply with the first point above.  The second point is rarely problematic and certainly wasn’t in this case, as physical impediments have to be onerous to the extreme in order to cause a tenant to fail that test.

The Court also found that there was no evidence of waiver.  Waiver is a very difficult concept to prove and really should only be used as a last resort, rather than something to be relied on prior to an event.

This judgment reiterates the importance of taking legal advice prior to exercising any break option and highlights the need to seek clarification on any points of ambiguity.  Conditions must be strictly adhered to and landlords (and the Court) are unlikely to assist a tenant that falls foul of those conditions.

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.

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.

Author: David Linklater

It has been reported in the press that campaigners are calling for greater transparency to planning laws, apparently so as to give communities a greater understanding of new businesses opening in their locality.

This come hot on the back of reports that a Tesco Express was attacked by rioters in the Bristol April riots. On the afternoon of those riots, slogans such as ‘I love community’ and ‘not welcome’ were daubed in the vicinity of the building.

It is thought that the objection to the arrival of Tesco was down to a fear that it would compromise the Bohemian nature of the area and drive away individual business. It is reported that locals were angry at the local planning office,which had failed to highlight the fact that a new supermarket would be opened. As a result of this adverse publicity, Bristol City Council wrote to the Department for Communities and Local Government requesting that a new ‘supermarket’ use class be adopted. This would differentiate supermarkets from other retail outlets.

The justification of this is that communities feel that national chain stores have a greater potential impact on an area than a local, independent retailer, in that a national chain is more likely to have frequent deliveries from heavy goods vehicles and more of an economic impact on rival retailers.

The Department for Communities and Local Government has said that it is not the role of the planning system to restrict competition or to give one retailer an advantage over an another.

It remains to be seen what step campaigners will take next. However, what can be predicted is that any further steps will be fiercely resisted by Tesco, national supermarkets and large retail chains generally, the latter being likely to enter the fray to avoid a dangerous precedent being set. It seems unlikely that local campaigners will be able to resist the force of such national giants, however, what remains to be seen is whether Tesco, once approved and opened, would be boycotted by the same campaigners. The success of Tesco and its national competitors suggests possibly not, but it will be interesting nevertheless to see how this one plays out.

David Linklater is an Associate Solicitor in the Property Litigation department. He specialises in all aspects of commercial property litigation, acting for tenants, landlords, investors and developers.

If you would like more information or advice relating to a specific matter, please do not hesitate to contact David Linklater on 01727 798097 or by email at david.linklater@salaw.com
© 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.

Author: David Linklater

As you may have heard in the newspapers recently, there has been much speculation about the possible takeover of Iceland by Morrisons.  The 40-year-old Iceland chain has been put up for auction by the Resolution Committee of Landsbanki, the failed Icelandic bank that took ownership as a creditor of Icelandic retail group Baugur.
It is suggested that this would give Morrisons the much needed boost to rival their nearest competitors by increasing the company’s market share by about 2% to 14%, bringing it nearer to its closest rival, Sainsbury’s, which has a 16% share of the sector.
Iceland has roughly 800 stores, mainly focused on high streets which will mean Morrisons get a long awaited foothold on the high street market and be a more dominant force in the South East.
There is also speculation that rival supermarket chains Sainsbury and Asda are interested in buying the majority stake in the frozen food retailer. Another name linked with the takeover is Iceland chief executive Malcolm Walker who already owns 26% and made an offer on the remaining shares of £1bn last year.
The sale process begins in September when all eyes will be watching to see what happens to the iconic brand and whether it retains its position in the market as a leading provider of discounted frozen foods or whether the new owner will try to re-brand.

Author: David Linklater

One of the challenges that faces retailers is to remain as competitive as possible in a fast-changing market.  Key to this is the ability to increase market share whilst keeping overheads as low as possible.

Retailers can achieve this through the use of “multi-channel retailing”, which is where the retailer offers the consumer multiple ways in which to buy a product.  This allows consumers to choose the means of shopping that is most convenient to their lifestyle.

A study by Deloitte has revealed that shoppers who use a combination of channels will spend on average over 80% more than consumers who only shop in store.  A shrewd retailer will realise the potential to be unlocked from investing in multi-channel retailing and many already have additional channels to complement traditional in-store purchases.

Whilst consumers increasingly shop around online for goods, most still like to be able to check out certain items in a store first and the challenge for the retailer is to ensure that when those consumers do make their purchase, they don’t make the purchase elsewhere.  Deloitte found that retailers without a store presence can benefit from attracting customers who have seen goods in store elsewhere.  This is of course a serious cause for concern amongst retailers with a physical presence, as their rivals will attract the customer on the basis of price alone, without having made the initial investment.

To combat this, the purpose of a retailer’s premises will move from being primarily one of retail to one of brand promotion, product showroom and collection point.  This will either attract customers into the store or cause them to bear in mind that particular retail brand, should they decide to make the purchase via another channel.

What is clear is that the battle lines between purely online retailers and those with a physical presence have been drawn and it will become increasingly hard for the latter to compete, when faced with their increased overheads.  It is essential that they diversify and change their physical presence into a strength rather than a weakness.  Clever use of floor space, marketing and multi-channelling will all assist in this process.

Ultimately, though, it is the consumer that will have the final say.