If anything case law makes life progressively more difficult for tenants, just as wishing to exercise break rights, given the current economic climate, becomes more likely.
In Avocet Industrial Estates LLP v Merol Ltd and Tudor Rose International Ltd  (judgment 19 December 2011) before Morgan J in the Chancery Division, the tenant served a break notice, pursuant to a lease which provided that the break would be of no effect if at the break date any payment due on or before it had not been made. When serving the break notice the tenant advised the landlord it was not aware of any breaches of covenant.
A break “penalty” of a sum equivalent to six months rent had to be made before the break date. The tenant hand delivered a letter to the landlord the day before the break date, enclosing a cheque for the “penalty”, again saying that it was not aware of any breaches of covenant. After the break date had passed the landlord denied effectiveness of the break, saying that the penalty was not in cleared funds, as at the break date, and also that the tenant was required to pay, and had not paid, interest on rent and service charge payments which had been made late previously during the term (even though such interest had never been demanded).
Taking these arguments in turn it was held:-
The judge admitted that the combined effect of the interest clause and the break clause created a trap for the tenant; for the sake of about £130 the tenant was stuck with a continuing lease of premises it did not want.
There is a chink of light for tenants here though – for the first time a court has contemplated the possibility of a landlord who knows that the tenant has made a mistake causing failure to comply with break right conditions not being allowed to take advantage of it to deny the tenant’s break entitlement, on application of estoppel principles.
If you require any further information about the issues raised in this article please contact Mark Kendrick (firstname.lastname@example.org), or any other member of Goodman Derrick LLP’s Real Estate team on 0207 404 0606.
This guide is for general information and interest only and should not be relied upon as providing specific legal advice.
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