Tenants exercising break clauses in their leases are creating plenty of work in the property disputes field at the moment. Many tenants who have the opportunity to break the term of their lease are seizing it, and landlords in return want to find any way possible to challenge the validity of those notices. This posting identifies some of the topics arising on lease breaks.
Broadly speaking, the issues that arise when a break notice is served are:
1. Was the notice validly served on the correct person, at the correct address, and by the correct method?
2. Was the break validly exercised in terms of any conditions that the tenant had to comply with in order to break it?
- As to #1, the examples we see include notices addressed to managing agents, previous landlords, or simply addressed to the wrong address. The lease may be specific and direct service at the landlord’s registered office address, for instance. It is imperative that the notice provisions of the lease are closely looked at before any notice is served. Many leases will also contain reference to section 196 of the Law of Property Act, which lays down specific methods of posting notices: ordinary first class will not do and, at the other end of the spectrum, service by courier will also be challenged.
- The break clause itself must also be scrutinised. Not only will it provide for the period of notice that has to be given (and you’d be surprised how often that is ignored), but it will also set out any conditions to the exercise of the break right. This could be simply to have paid the rent up to the date of the break, or it could be to have complied with all covenants under the lease. Some clauses even require compliance as of the date the break notice is served. Some add confusion by specifying “material compliance,” which is another area where disputes can easily arise.
Courts currently seem inclined to treat a notice as validly served if in fact it came to the attention of the correct person at the time it was served or shortly thereafter, especially if an agent held itself out as having authority to accept service of notices on the landlord’s behalf. A presumption toward the reality of the situation seems to be favoured. It is unlikely, however, to get you past specific provisions in the lease as to service at a particular address.
There is no such pragmatism, however, in terms of the effectiveness of the notice to terminate the term where conditions have to be complied with. Here, you may expect strict compliance with the terms of the lease, and this is where landlords can and do challenge. Was vacant possession actually given when not all of the tenant’s goods were removed by the break date? Was all rent, service charge, insurance, etc., paid up to the break date if it was apportioned up to the break date and not the next quarter day? Perhaps the biggest killer is, was the repairing covenant complied with or materially complied with, and this is often specified as a pre-condition to any break?
For the tenant’s part, no tenant should be exercising a right to break where the repairing covenant is to be complied with, without entering into an agreement with the landlord as to exactly what is required in terms of repair at least six months before the termination date if possible, to allow work to be done. For the landlord’s part, you have no obligation whatsoever to tell the tenant what it needs to do to comply with the covenant if you don’t want to.
The subject is a minefield, and this is the barest of overviews. We can help if you need specific advice.