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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