Break Rights: A Costly Trap For Tenants

Author:Ms Sophie Ogilvie
Profession:Dechert
 
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In the case of Avocet Industrial Estates LLP v Merol Ltd, a tenant's failure to pay interest of £130 resulted in it being tied-in to a further five years under its lease as a result of an ineffective break. The judge concluded that the decision was "harsh" but one that he was obliged to reach. The Facts The tenant had a 10-year lease with an option to break on 17 March 2010. The break option was conditional on the tenant having paid a one-off amount equivalent to six months' rent and having settled all sums due under the lease up to the break date. Under the lease, the tenant was required to pay default interest on any sums paid late during the term. On several occasions the tenant failed to pay its rent on time and the landlord had sometimes (but not always) made demands for default interest. Seven months before the break date, the tenant served notice to terminate the lease. The notice stated that the tenant was not aware of any outstanding sums due under the lease and that the landlord had not given notice of any breach. The day before the break date, the tenant sent the landlord a cheque for six months' rent, together with the keys for the premises. The covering letter re-iterated that the tenant was not aware of any outstanding sums due under the lease. On 7 April 2010, the landlord wrote to the tenant stating that the tenant had not complied with the break clause because: the payment of six months' rent had been made by cheque rather than cleared funds into the landlord's bank account; and default interest was payable on late rent payments and had not been paid. The tenant argued that payment by cheque was sufficient and that no interest was due as it had not been formally demanded by the landlord. The Decision The landlord was not entitled to reject payment by cheque. The general rule is that payments...

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