Whether you are a landlord or a tenant, a recent case (Avocet Industrial Estates LLP v Merol Limited and Another (2011)) highlights the need to ensure that in exercising a break clause the conditions attached to it are strictly followed.
In the Avocet case it was a condition of the exercise of the break clause that all rents were paid up to the date of termination.
It transpired that during the previous 6 years (which is the limitation period relating to rents) the tenant had been late on a few occasions when paying the rent. The lease specified that interest was payable on late payments, although up to the termination date the landlord had not made any demand for interest.
Following the termination date, the landlord informed the tenant that it had not complied with the break clause because the tenant had failed to pay the interest on the previous late payments of rent.
The Court found in favour of the landlord which meant that the lease had not terminated and the exercise of the break was ineffective.
On a different issue relating to break clauses, where the break provision states that as a precondition the rent must be paid up to the date of termination, if that date does not fall upon the last day of a rent period then the tenant must pay the rent up to the end of that rent period even if the break date is prior to it.
For example, if the break date was 30 November and the rent is payable on the usual quarter days, then if the tenant exercises the break provision it must pay rent up to the end of that quarter (i.e. until the 24 December) because at the time of the exercise of the break clause that will be the rent due at that moment in time (i.e. 29 September – 24 December).
If you are a tenant, it is debateable whether or not the monies paid for the period beyond the break date (i.e. in the example given, for the period 1 December to 24 December) are recoverable unless there is an express provision to that effect.
The two issues highlighted are examples of how a simple issue of exercising a break provision can be complex and a potential minefield. In consequence it is in your interest to obtain legal advice on a break clause being exercised whether you are a landlord or a tenant to ensure that your rights are fully protected because failure to deal with it properly can have dire consequences.
For more information please contact Steven Porter.
Tel: 020 7644 6091