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Commercial Leases: Break Clause

March 14, 2012

Avocet Industrial Estate LLP v Merol and another [2011] EWHC 3422 (Ch)

Another case were the courts have been rigid in their interpretation of a break clause in a lease. In this case the tenant had a 10 year lease which had a conditional break clause under which the tenant could bring the lease to an end after five years providing certain conditions were complied with.

In this clause the break was conditional on all sums being paid under the lease.

The Tenant had served the break notice seven months prior to the break date and the day before delivered the keys and a cheque for what he thought were the outstanding amounts.

The landlord challenged the break on the following grounds,

  • £130 interest was due which had accumulated after an insurance premium was paid late and the tenant had overlooked because he hadn’t had a demand from the Landlord.
  • The tenant had paid amounts by cheque rather than cleared funds as stipulated in the clause.

The landlord had previously accepted cheques so that argument was rejected by the court however it was held that he had failed to pay the interest of £130 and as a consequence had to take the remaining 5 years of the lease.

The mistake was to cost the tenant £67,500 a year for the next 5 years.

Be very careful and ensure that if your lease does have a term such as this stick rigidly to the requirements. Take advice from your solicitor as to what exactly you need to do.

If taking a new lease avoid agreeing to such a term or if you have to ensure that all sums have to be demanded in writing from you by the Landlord for example 14 days prior to the break.