Conditions not complied with:
Conditional break clauses can be very difficult for tenants to operate.
In a recent Scottish case Arlington Business Parks GP Ltd v Scottish & Newcastle Ltd the tenant occupied offices on a business park under two separate leases.
The leases were not due to expire until 2023, but included break clauses entitling the tenant to bring them to an end on 7 May 2013. The break clauses required the tenant to give 12 months’ notice and stipulated that the tenant should not be in breach of any of its obligations “at the date of service of such notice and/or the termination date”.
The tenant served break notices for each lease on 3 May 2012. But the landlord continued to demand rent and claimed that the leases remained in force because the tenant was in breach of its repairing obligations when the break notices were served.
The tenant admitted that it had not fully performed its repairing obligations on the date of the service of the notices. However, it had subsequently spent over £1.3 million on the premises to ensure that they were in proper repair on the termination date. The Court accepted the landlord’s argument. Both leases therefore remained in full force and effect and the tenant was liable for rent for the remainder of the term.
No refund of sums paid post break date:
The Marks and Spencer plc v BNP Paribas case centres on whether the landlord should refund rent paid after the break date?
M&S entered into four leases of office premises in a building in Paddington known as The Point.
M&S subsequently exercised a mid-quarter break clause in all four leases. It then argued for repayments of rent, service charges and car park licence fees totalling £1.1 million.
In the High Court the judge was sympathetic to M&S’s plight. Although he acknowledged a long-standing common law principle of lease interpretation he implied a term into the leases that the tenant should be entitled to a refund.
He said that such a term would be “eminently reasonable” and “necessary to give business efficacy to the lease”.
The Court of Appeal has now overturned the High Court decision and confirmed that an implied term could not reasonably be implied in this case.
Strict form of words:
In the recent case of Siemens Hearing Instruments v Friends Life a break clause in a lease said that any notice exercising the break “must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954”. At the time the lease was granted these (now obsolete) words were intended to stop the tenant from both breaking the lease and claiming a new lease (at a more favourable rent) under the 1954 Act.
The tenant’s solicitors served a break notice that failed to include the (by then pointless) words. The High Court decided last year that this did not matter. The notice was still valid to break the lease. This has now been reversed by the Court of Appeal.
The Court of Appeal said the omission was fatal to the notice, even though everyone agreed the magic words were pointless. It was a classic case of “if the notice had to be on blue paper, it would be no good serving on pink paper, however clear that the tenant wanted to terminate the lease.”
The rent is £325,000 per annum and the lease will now run for until 2023.