June 12, 2012

Beware the attractive break clause!

During the recession, the break clause has become an increasingly popular way of enticing commercial lease tenants to either sign up or stay on, but beware the hidden pitfalls. A recent case highlights how break clauses need to be followed to a point of obsession and may not be as attractive as previously thought.

Break clause detail

Merol Ltd and Tudor Rose International Ltd wanted to get out of their lease and regularly paid by cheque, however the break clause in the tenancy which was agreed by all parties, stated that all rents must be paid up in full up until the break date. The day before the break was to be completed, it became known that the tenant was late on a few occasions with rent and there was outstanding interest, but the landlord had never demanded nor informed the tenant of any interest due for late payment

The Court’s decision

The court found in favour of the landlord. The wording of the clause showed that the landlord did not need to formally demand interest, but the liability of interest arose when payment became overdue, therefore making the break clause termination null and void as the tenant had not paid the default interest.

What action should you take?

  • Thoroughly read through all points of the clause and ensure strict compliance.
  • Always, always instruct a solicitor to deal with the service of a break notice on your behalf.
  • Take legal advice on what steps to take to procure strict compliance, bearing in mind the increase in case law on this topic!
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