Break clauses – a cautionary tale

September 6, 2014
All Tallents Articles Commercial law

Following on from Tom Gibbons’ recent article commenting on what Landlords and Tenants need to know about break clauses, a recent Court of Appeal case offers a timely illustration of just how inflexible the rules can be, and the kinds of difficulties that can arise.

In the case there was a break clause in a Lease which stated (amongst other things) that any notice given by the Tenant exercising the break clause had to be given under section 24(2) of the Landlord and Tenant Act 1954.

The Tenant served a notice purporting to exercise the break clause. Critically, however, the break notice did not state that it was given under section 24(2) of the Landlord and Tenant Act 1954. The Landlord therefore denied that the break clause had been validly exercised.

The Court of Appeal decided in the Landlord’s favour, finding that the notice was defective as it failed to refer to the relevant statutory provision.

Whilst it might seem harsh on the Tenant that they should be unable to exercise a break clause for the want of a particular form of wording; this was, however, in accordance with established legal principles that the Courts will require absolute compliance with any conditions attached to break clauses; a Tenant will either have complied or not, there is no room for ‘substantial compliance’ and the result of failing on any one point will invalidate the break notice.

The case serves as an illustration of just how easy it is for Tenants to get things wrong when serving break notices – in this context the formal requirements specified in Leases may well appear as ‘traps’ for unwary Tenants.  Where a Landlord and a Tenant have agreed in a Lease that certain conditions will apply to the break clause then Tenants should not be surprised that strict compliance with those conditions will be required.

In addition, it is worth considering the potential consequences of getting it wrong; Tenants could find themselves committed to unwanted properties (and all of the liabilities that go with them) for the remainder of their Lease terms and all as a result of a failure to comply with procedural requirements. This might well affect the Tenant’s future plans and its ability to operate as planned going forward.

As a result, this case stands as a reminder that, whilst it may be tempting for Tenants to produce a simple letter concerning a break clause, this may not be enough to ensure that the break is validly exercised. As we suggested previously, the costs of getting sound advice from the outset are likely to be substantially lower than the possible costs of resolving a dispute further down the line.

For further advice in connection with break clauses, or any other commercial Landlord and Tenant matters, please contact the Commercial Law team at Tallents.

break clauses exercising a break clause landlord and tenant act 1954
Previous Post
Conservation covenants – what developers and landowners need to know
Next Post
Agricultural Property Relief – protecting your relief