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Commercial Tenants Beware: Conditional Break Clauses in Leases

by Graham Roberts | Feb 25, 2013

With tenants increasingly looking to add break clauses into their leases (and/or looking to exercise them) and landlords anxious to retain tenants so that they are not left with vacant premises and a potential rates liability, the issue of break clauses, remains a “hot topic”.

Many break clauses in commercial leases contain “conditions” that a tenant must comply with before a break notice can be validly exercised.

The potential pitfalls for tenants have just got a whole lot more problematic.

This time last year we reported on the puzzling High Court decision in the case of Avocet Industrial Estates LLP v Merol and another.

In that case the Court decided that a tenant was unable to exercise its break clause and terminate its lease. The break clause had been conditional on there being no outstanding payments due at the break date. Whilst all rent had been paid up to the break date, the tenant had, on occasion, paid the rent late. The lease contained a standard provision entitling the landlord to charge interest on late payments and, whilst the landlord had not issued any demand for interest, he contended in Court that there was an outstanding payment due. In that the interest had not been paid before the break date, the landlord argued that the break notice was invalid. Somewhat bizarrely and harshly the Court agreed.

Since that decision it had been anticipated that this case would go to appeal and that initial decision would be overruled. However, as of the start of this year, the two parties have come to an out of court settlement. As such, the case will not be re-heard and the original High Court decision remains good law.

With this in mind, commercial tenants who are thinking of exercising a break clause in a lease should tread very carefully. Obtaining legal advice before serving any break notice is advised. With landlords keen to exploit loopholes there will doubtless be other tenants who find that, whilst they may wish to get out of a lease, it may not prove as easy as they envisaged.

If you are a commercial tenant or landlord and require any legal advice on this subject or other commercial property matters, please click here or contact Graham Roberts, solicitor at Spratt Endicott Solicitors on groberts@se-law.co.uk or phone Graham on 01295 204145.