Two recent cases have again highlighted the inherent dangers to tenants in exercising conditional break rights. In one case the tenant was lucky – failure to pay the insurance rent did not put it in breach of the lease because of the specific wording. In the other it was held that the tenant was in breach because it had paid rent late some years before and had not paid the interest that was due as a result (and had not been demanded).

The first decision involved a break clause that was conditional on there being no arrears of rent and no other outstanding breaches of covenant at the expiry of the notice to break. The break date was 18 December 2010. In November 2010 the landlord sent an invoice for the insurance premium for the premises due for the next year. The tenant was required to pay such sums as the landlord may "from time to time expend in insuring".

The tenant objected as the insurance premium covered the period after it would have vacated and refused to pay. The landlord's cheque to the insurance broker went astray and the broker paid the premium on behalf of the landlord prior to the break date.

The court held that the landlord could not demand payment for the insurance charge in respect of sums that it had not yet actually expended. As a result, the tenant was not in breach of the lease as at the date of expiry of the break notice.

The second case is a harsh warning to tenants to be extra careful about complying with all the terms of a conditional break clause. The lease gave the tenant the right to break on a specified date. The break would be of no effect if any payment due under the lease had not been paid, amongst other conditions. Throughout the lease the tenant had paid rent by cheque and had often paid slightly late. The day before the break date, the tenant delivered a cheque to the landlord for the payment of six month's rent due under the break clause and stated that it had paid all outstanding charges and was not aware of any breach.

The landlord argued that the break payment had not been paid because cleared funds had not been provided. It also maintained that there were outstanding charges as the tenant had not paid interest that was due under the lease for payments of rent that had been paid late in the past, even though no demand had been made for the payment of interest.

The court held that the landlord had consistently agreed to accept cheques as payment for the rent and that therefore there was an implied agreement that the landlord would accept payment by cheque of sums due under the lease. That was not therefore an issue. But the court went on to say that the tenant had owed interest because of the late payments of rent. Nowhere was it stated that the landlord was entitled to interest only when it had served a valid prior demand for it and the tenant was able to calculate the interest due without any real practical difficulty. Therefore because the tenant had not paid the interest that was due, even though it had not been demanded, a payment due under the lease had not been paid and the break was ineffective.

Both decisions warn tenants that the detail of each break clause must be looked at most carefully. Wording will change from lease to lease, especially in relation to sums due to the landlord other than rent. If payments are made that are for periods after the break date, the tenant should negotiate repayment of these sums in the break clause.

The second case provides helpful guidance on the payment of sums by cheques. The result also means that, depending on the wording of the break clause, tenants will have to scrutinise their payment records to see if additional sums by way of interest are due to the landlord.

Law:
Quirkco Investments Ltd –v- Aspray Transport Ltd [2011] EWHC 3060 (Ch)
Avocet Industrial Estates LLP –v- Merol Ltd [2011] EWHC 3422 (Ch)

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 13/01/2012.