Thursday, 14 June 2012

Lease Break Clauses: Leave No Stone Unturned

Lease break clauses – the gift that keeps on giving for lawyers, landlords and, yes, blog writers.

The latest case to come to my attention, decided in March 2012, is a reminder to tenants that when seeking to exercise a break clause:

·         Check all the property’s title deeds, not just the lease.

·         If you reach agreement with your landlord to vary the break clause in some way, comply strictly with the conditions and remember that to satisfy the new conditions, time is likely to be of the essence.

A couple of years after entering into the main lease of its premises, the tenant had taken a supplemental lease of more space next door.

The main lease had a break clause.

When the tenant entered into the supplemental lease, the break clause in the main lease was varied to include a further condition that if the break clause were ever exercised, the tenant must also give vacant possession of the next-door premises at the same time.

The supplemental lease also contained a corresponding break right.

The tenant served its break notice under the main lease but didn’t serve a notice at the same time to end the supplemental lease.

The main lease gave the tenant, as an alternative, an option to carry out separation works between the two premises – but it wasn’t possible to complete those works before the break date.

The landlord and tenant then agreed, in a letter, that the landlord would accept that the break would be effective, provided the tenant paid the landlord an agreed sum on or before the break date.

The amount agreed reflected the cost of the separation works and liability for dilapidations on the main premises.

Due to an administrative error in the tenant's accounts department, the tenant didn’t make payment by the break date.

The court decided, interpreting the wording of the letter, that the tenant’s failure to pay the money on time meant it couldn’t operate the break - time was of the essence for that payment.

It looks as though, at the outset, the tenant had overlooked the supplemental lease and the variation of the break clause in the main lease when serving its break notice – which set in train the need for it to negotiate a way out, which it then unfortunately missed.

The case was Intergraph (UK) Ltd v Wolfson Microelectronics plc [2012] EWHC 528 (Ch) (no link yet).

Here’s a link to other posts on this blog looking at break clauses.

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