Lord Justice Lewison advised tenants only recently that: “If you want to avoid expensive litigation, and the possible loss of a valuable right to break, you must pay close attention to all the requirements of the clause… and follow them precisely” (Siemens Hearing Instruments Ltd v Friends Life Ltd [2014] EWCA Civ 382; [2014] PLSCS 114).
Sadly, the warning came too late for the tenant of offices on a business park in Scotland, held under two separate leases. Arlington Business Parks GP Ltd v Scottish & Newcastle Ltd [2014] CSOH 77; [2014] PLSCS 136 highlights the importance of checking break clauses carefully to see whether the tenant will have to comply with any conditions in the clause on the date of the service of the break notice, or on the break date, or on both such occasions.
The tenant’s leases expired in 2023, but included break clauses that enabled the tenant to bring them to an end on 7 May 2013. The break clauses required the tenant to serve 12 months’ notice to determine the leases 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 on the landlord on 3 May 2012 in respect of both leases, but the landlord continued to demand rent after the break date. It 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 subsequently spent over £1.3m on the premises, to ensure that they were in proper repair on 7 May 2013. It suggested that the operative date was the break date. Alternatively, the condition had been inserted in the break clause to ensure there were no disrepairs when the landlord received the premises back. Therefore, the term “breach” meant a material, non-remediable breach and the tenant was not in breach when the break notices were served because the disrepairs were remediable. Consequently, the leases terminated on 7 May 2013, when there was no default of any kind.
The Outer House of the Scottish Court of Session rejected both arguments. It ruled that the tenant’s first argument would render the concept of breach at the date of the notice irrelevant – and that it would require clear wording before the court could construe the condition in the break clause in the way that the tenant was suggesting. The court preferred the landlord’s argument that the condition in the break clauses was included in the leases to enable the landlord to market the premises in proper repair during the 12 month notice period. Therefore, both leases remained in full force and effect and the tenant was liable for rent for the remainder of the term.
The decision highlights the risk of accepting conditions in break clauses that apply when a break notice is served, as well as on the break date itself. The tenant may come to regard any sums paid to the landlord on the service of the notice, or spent in the interim in the expectation that its lease would determine on the break date, as money down the drain.
Allyson Colby is a property law consultant