Arlington Business Parks GP Limited v Scottish & Newcastle Limited [2014] CSOH 77 considered whether notices served by the tenant, seeking to exercise a break option under two separate leases, were valid and effective.
Arlington leased two office premises to Scottish & Newcastle Limited in Edinburgh. The leases both expired in 2023, but could be broken as at 7 May 2013 by the tenant giving twelve months notice. Scottish & Newcastle served notices on 3 May 2012 and subsequently invested £1.3 million to ensure both premises were in proper condition as at termination. The landlord did not accept that the leases were broken on 7 May 2013, and raised an action for payment of rent.
The court was asked to interpret the break clause, which obliged the tenant to not be "in breach of any of their obligations (under the lease in question) at the date of service of such notice and/or the termination date." Lord Malcolm read this as meaning that "a notice is invalid if the tenants are in breach at the date of the notice, or the date of termination, or both" – which imposed a condition that the tenant could not be in breach of any obligations under the lease as at 3 May 2012.
Crucially, Scottish & Newcastle had admitted a failure to comply with the repair and maintenance obligations under the lease as at the date of service – the result of which was that a subsisting breach was in existence as at the date of service. Accordingly, the break notices were not valid, and the court held Scottish & Newcastle liable for non-payment of rent from 7 May 2013.
In light of this case, all landlords should ensure that any conditional break clause in a lease is drafted with clarity to avoid costly litigation. If you are currently occupying premises as a tenant – check that your lease terms do not impose defined pre-conditions on the exercise of your break option.
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