Break or bust

Conditional break clauses continue to haunt tenants.

Once again, a tenant has been stung by onerous break clause conditions that were virtually impossible to comply with (Sirhowy Investments Limited v Henderson & Knight).

Mr Henderson and Miss Knight were tenants of land in Pontllanfriath, South Wales which they used for their car sales and repair business.  The lease was for a term of 10 years but contained a right for the tenants to break the lease on giving three months notice.  The right to break was conditional on the tenants having complied with all the covenants in the lease.

The tenants served notice in 2010.  The landlord claimed that the notice was ineffective on a number of grounds including, in particular, that the tenants had not complied with all of the covenants in the lease.

By the time of the trial some 4 years later, the parties were in agreement that if the break was ineffective, the tenants were facing a liability of £70,000 plus interest and costs. The burning question was therefore: had the tenants complied with all of the covenants? If so, the break was effective and they were in the clear. If not, the break was ineffective and they were in big trouble.

It is fair to say that at the trial, the landlord’s enthusiastic attempt to highlight as many tenant breaches of covenant as possible turned into something resembling a farce. One of its more hopeful arguments was that because the tenants kept a dog at the premises, they were in breach of the covenant not to keep livestock on the land.

It is not clear whether the serious attempt to place a pet dog in the same category as a herd of cattle caused any amusement in court. Probably not given the financial stakes and the mind-boggling four year build-up to this trial. But needless to say, the court agreed that it would be stretching things somewhat to class a pet dog as livestock.

The thornier issue however was whether the tenants had complied with the covenant to keep the premises in good and substantial repair.

The court rejected the landlord’s argument that there had been breaches of covenant in respect of external painting and decoration and the removal of certain lights without consent.  The outcome of the case centred on the condition of the fencing around the land and whether the fencing was in good repair or not.

There had been a break-in several years previously and the damaged fencing had been repaired by the tenants with the installation of temporary sheeting. The court unfortunately agreed with the landlord that this rough and ready repair was not sufficient and represented a breach of the repairing covenants in the lease.

The tenants had not therefore complied with the break conditions and the attempt to break the lease was ineffective.  As a result, the tenants were liable for £70,000 plus interest plus exorbitant costs.

The lesson to be learnt, as ever, is not to agree to any break conditions if at all possible. If the landlord insists on conditions, make sure that any such conditions are not too difficult to comply with.

Unfortunately, whilst the tenants’ dog may have claimed a moral victory, the tenants themselves have been left facing financial armageddon.

For any advice in relation to issues raised in this article, please contact Andrew Turner on 01242 586 841 or at aet@hughes-paddison.co.uk