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Alexandra Townsend Wheeler, paralegal at Bircham Dyson Bell LLP
suggests that tenants wishing to exercise a break clause which is
conditional on all sums due under the lease having been paid must
look very closely at the rent obligations in the lease to avoid the
break being frustrated.
"Break clauses are becoming increasingly more important
to tenants in the current economic climate, but there have been
some documented failures to adhere to obligations in the lease in
order to exercise a break without issue," said Alexandra
Townsend Wheeler.
"Most recently, tenants are being warned to pay
particular attention to interest owing on late payments of rents
reserved by their lease. If the lease states that interest is
payable on late payments regardless of whether it is demanded by
the landlord, tenants must consider whether any of their payments
to the landlord throughout the term of the lease have been made
late. The tenant needs to make sufficient enquiries to ascertain
any level of interest payable in order to ensure that all monies
due under the lease are paid up to the date of the break.
In the case of Avocet Industrial Estates LLP v Merol Limited
such enquiries were not made and the tenant's exercise of its
break option was frustrated.
"Times are changing; tenants often find during their
lease term that they need smaller premises, or alternatively they
are struggling to make rental payments. On the other hand,
landlords can struggle to find appropriate new tenants, so the
exercise of a break clause is of vital importance to both
parties," said Alexandra Townsend Wheeler.
"A brief warning to landlords however is that if a
landlord knows a tenant mistakenly believes it does not owe any
sums due under the lease, and the landlord does not correct that
belief, the landlord is unable to take advantage of the
tenant's mistake. It would be estopped from contending that the
break was invalidly exercised on the basis that any sum was due and
unpaid.
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