Most people now realise that the terms of a break clause have to be strictly adhered to for the break option to be validly exercised.  This can be a particular problem for a tenant when the break option is conditional on all sums payable under the Lease having been paid by the break date (or on the tenant having complied with all of its covenants under the lease).

A recent case (Avocet v Merol [2011] EWCH3422 (Ch)) demonstrates one of the problems which can cause this.  In this case, the tenant served a break notice on the landlord which the landlord did not initially acknowledge.  The tenant then proceeded to vacate the premises by the break date and returned the keys to the landlord.  After the break date had passed, the landlord refused to accept the break on the basis that the tenant had not complied with the condition in the break clause requiring the tenant not to be in breach of any covenants under the Lease. In this case the breach was a result of outstanding interest due to the landlord in respect of late rental payments even though the landlord had never previously claimed any interest from the tenant.  The landlord was entitled under the Lease to penalty interest if any “rent or any other money payable under this Lease” was paid late and it turned out that the tenant had, in fact, paid the rent late on three occasions in the past.  The terms of the Lease did not require the landlord to actually demand the interest from the tenant because it automatically became payable as soon as the rent was late.  The High Court held that the terms of the break option had therefore not been fully complied with and the tenant’s purported exercise of the break option was therefore invalid. 

The result of the case seems very harsh particularly when the interest was eventually calculated to be a mere £130! However, it is entirely in line with the established position in respect of break clauses whereby strict compliance is an absolute requirement.  Unless the tenant has accrued a substantial amount of interest then the landlord will probably not bother to claim it but that does not prevent them from trawling back through the rent payment records to see if there were ever any late payments for which interest would have been payable.  The only answer to this is to check back over your payment history and work out whether any interest may have been technically payable and, if so, arrange for it to be paid and on the safe side if there is any doubt over how much might be payable. 

The Solution

The best solution is to avoid taking a Lease which contains such an onerous break clause.  Ideally, the break option should be unconditional but if it is to be conditional then a prospective tenant should ensure that the only conditions that it agrees are payment of the annual rent up to and including the break date and vacant possession on the break date.

Have a query?

If you would like to discuss any of the issues raised here, please contact us.

Contact: Joe Griffiths on 020 7691 4169 or email:

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