Break failure

Commercial lease break clauses continue to be a rich source of dispute and a challenging economic climate makes it easy to understand why. For example, a tenant may wish to exercise the break to offload an over-rented property, whilst a landlord may be desperate to avoid the expense of an empty premise.

A Court of Appeal decision last year on Friends Life v Siemens Hearing Instruments Ltd gave a boost to a landlord’s ability to keep their tenant committed under the lease.

Facts

Siemens was a commercial tenant, granted a 25 year lease from, and including, 24 August 1998. The lease incorporated a break clause which the tenant could exercise on 23 August 2013.

The break clause was subject to the condition that the break notice “must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954”.

The landlord’s solicitor had included this condition in the lease in order to provide the landlord with protection against the tenant serving a break notice and making a simultaneous request for a new tenancy. Such protection would be beneficial in a period of market downturn in which the tenant could benefit from a rent review and a subsequent reduction in their rent.

Following the drafting of the lease, however, the case of Garston v Scottish Widows Fund meant that this wording became redundant and therefore had no practical effect on the break notice or indeed on the lease itself.

The tenants wrote to the landlord to exercise the break clause. Unfortunately for the tenant, the break notice they served did not include the requisite wording. The resulting dispute went to Court.

Decision

The Court of Appeal held that the break clause conditions must be strictly adhered to. The tenant’s failure to do so meant that the break notice they served was invalid, regardless of the condition’s practical effect and how clear it was that the tenant wanted to terminate.

Consequences

Prior to this decision, case law relating to break notices seemed to flit between two extremes; there were decisions in which the Court gave the benefit of the doubt to the tenant when they have taken all reasonably steps to make the break notice appear valid; and there were contrasting decisions in which the Court ruled that the break notice was invalid even where the tenant’s omission was negligible and in no way damaged the interests of the landlord.

The decision in Friends Life v Siemens Hearing Instruments Ltd would appear to reaffirm that break options are onerous mechanisms within a commercial lease. The tenant in this case was required to follow the conditions of the break clause to the letter despite the fact that the requisite wording no longer served any legal practicality.

Conclusion

Tenants should ensure that they follow the conditions of a break clause to the letter and landlords are entitled to pick through the tenant’s break notice with a fine-tooth comb.

Our Dispute Resolution team is here to help you with any questions you may have.

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