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.