Breaking up is (sometimes) hard to do!
- AuthorMichelle Cox
Breaking up is (sometimes) hard to do!
Failing to serve a valid break notice and correctly complying with the terms of a break provision can have drastic consequences. Breaks are often not rolling, so there is usually only one chance to get it right!
It should, in theory, be simply to break a lease – based on a contractual right, one party (usually the Tenant) advises the other that they wish the lease to end – but still the courts are seeing break cases before, either due to incorrect drafting and service; or as a result of failure to comply with a condition of a break. In brief, here is a quick round up of some of the issues to consider if you are a tenant or landlord thinking of exercising a break or upon receipt of a notice.
Drafting and Service of the Break
This is an area where technicalities matter – a simple mistake in addressing a notice can render the same invalid. In Hextone Holdings –v- AHC Westlink the notice was challenged by the landlord having been served by an associated group company and not the Tenant. The Tenant suggested that the Landlord's arguments were "unattractive and opportunistic" but the judge rejected this, and the notice – the Tenant had the contractual right to break the lease and he was the one entitled to exercise the break.
Famously, notice has been held to be valid notwithstanding the insertion of an incorrect expiry date – most notably in the Mannai case. However, what is important to note about Mannai is that the break clause did not require that the notice itself specify a date. A requirement for a specific date and correct periods for service must be complied with. For example, where a provision provides for "not less than…" or "at least…" a period of notice, issues such as the day of posting; weekends and bank holidays; and issues with the mail (publicised and widely recognised strikes for example) must be taken into account. If a period is specific for initiating service, it is advisable to ensure ample time is given – for example; if the notice is "not less than 6 months'…" it would be preferable to provide a minimum of 6 months and 1 week where possible, to account for any postage issues and allow for adequate service.
Check the service provisions in the lease as some may specify service at a particular address which is not "last know legal address/registered address", does service have to be by first class or recorded delivery post? Note that unless specified, first class post is deemed served on the second day after posting.
Compliance with Conditions of a Break
This can be at service of the notice or expiry, so it is important to check the details. On rare occasions, there are specific conditions required at service of the notice – if these are not or cannot be complied with, then the notice is invalid before it is even served.
There are often conditions upon expiry of the notice, the most common being to deliver vacant possession – this means removal of people and moveable items, cessation of the ability to trade from the premises and handing back the keys – any repairing obligations in these circumstances can be dealt with by way of usual dilapidations claims later.
However, sometimes there are conditions requiring 'material compliance' with all covenants and this can be difficult to verify - generally, the landlord must be able to re-let or sell the property without delay or additional expenditure (Fitzroy House Epworth Street (No.1) Ltd –v- The Financial Times Ltd) and this will include compliance with repairing covenants at the break date.
Also proving difficult are those provisions that require payment of Rent, interest and payments due under the lease and how they may be worded – if the condition simply states that all rent must be paid, check the definition of Rent and what it includes. We know the question of interest can, and indeed has, caused big problems in the past (Avocet Industrial Estates LLP –v- Merol Ltd) where just £130 of unpaid interest caused the Break Notice to be invalid.
Finally, apportionment of rent – if in doubt, pay the full quarter. Some leases provide "all rent due at the date of the break" is to be paid – that will be the full quarter and if there is no recovery provision for the repayment of amounts after the break date, the landlord is not obliged to refund. However, apportioning yourself can cause the break to fail.
Break provisions are specific to each lease and must be considered carefully. For more information or assistance in considering the legal position of your break provisions, contact Michelle Cox in our Commercial Property team.