Warning: Break Clauses In Leases - Respite For Tenants?
Paul Engelbrecht, Director and Head of Commercial Property at Hughes Paddison Solicitors, advises that there has been a recent flurry of cases where tenants have failed to persuade the Courts that they have complied with the conditions necessary to exercise their break rights in Leases. In the first reported case this year, the High Court found a glimmer of hope for tenants.
Tenant break rights are often subject to conditions and strict compliance with those conditions is required for the break to operate. Even the slightest mistake could spell danger for the tenants (such as not paying interest on a late payment!).
Where a break date falls part-way between rent payment dates, tenants have frequently come unstuck by only paying the rent due up to the break date, not for the full amount due as per their lease (which may be different from the break date).
This was exactly the problem that occurred in Marks & Spencer plc –v- BNP Paribas Securities Services Trust Company (Jersey) Limited and Another .
In the Marks & Spencer case, valid break notices were given and subsequently all payments were made under the leases, including the full quarter’s rent. After the lease was ended, the tenants requested a refund of the sums paid to and beyond the break date. The landlord refused to pay this back, arguing (among other things) that there was nothing in the lease that required them to do so. The good news is that the Court ruled in favour of the tenant and ordered a refund of the overpayment of rent back to the tenant. This never used to be the case, hence the reluctance of tenants to pay beyond what was required.
Whilst the Marks & Spencer decision is helpful, it does not mean the tenant will automatically be entitled to a refund of rent in every case. In each case the Court will look at individual facts of the case, the intentions of the parties and the documents themselves.
Practical ways to avoid the danger
Tenants can take steps to avoid this extremely dangerous area. Solicitors themselves dread break clauses due to the fact that it is often the highest area of negligence that they face. This speaks volumes: if solicitors are nervous about this, then how on earth can tenants feel comfortable that their notice is valid? Was the break notice sent to the right address at the right time with the right notice and in accordance with the right conditions? Has the landlord changed, have the addresses been updated on the lease or the title to the property? Where do I need to serve the notices, how does it need to be served? These are all the questions that need to be posed in every case for every break clause and solicitors should always be consulted, either by landlord or tenant, to check the validity of break clauses with their initial drafting (which should be as simple as possible) and if they have in fact been validly terminated.
For more information and help and for a free initial discussion on your query, please contact Paul Engelbrecht on 01242 586868 or email email@example.com.