Break Clauses - Traps for Tenants - A cautionary tale

In  a recent case (Avocet Industrial Estates LLP v Merol and another [2011] EWHC 3422 (Ch), the Court held that a Tenant invalidly exercised its right to break its lease because it had  not made all payments due under the lease as required by the break clause. In this case, as is common in most commercial leases, the lease required the payment of default interest on late payments. The Tenant served its break notice in the appropriate form on the Landlord and a day before the break date the Tenant sent the Landlord the principle rent due by cheque, the keys and confirmed the premises were vacant. However, before the expiry of the break notice, the Tenant had paid its rent or insurance late on three occasions. Notwithstanding the fact that the Landlord did not issue a demand for default interest on these late payments at the time, the Landlord wrote to the Tenant after the expiry of the break date advising that the Tenant had not compiled with the break clause because firstly, a cheque was not acceptable (the Landlord required cleared funds by the break date) and secondly, default interest was due because the Tenant had paid rent and other sums late.

The judge held that whilst the outcome was a “harsh one”, the Tenant had lost its right to break the lease and was bound for the remainder of the term.  The decision highlights the importance of obtaining the correct legal advice before negotiating new leases and seeking to exercise your right to break.

If you require any further information regarding Break Clauses or Commercial Leases in general please contact Ms M Nagra in our commercial property team.