The dangers of conditional break clauses have been clearly exposed in numerous cases. Sirhowy Investments Ltd v Henderson [2014] EWHC 3562 (Ch); [2014] PLSCS 307 is the latest in a long line of decisions that illustrate the problems caused when break rights are expressed to be conditional on the tenant having paid the rent and complied with the covenants in its lease.
The break clause at issue in this case was inserted into the lease at the tenants’ behest to cater for the possibility that they might became unable to trade from the site. Their planning permission, which enabled them to sell cars from the premises, was conditional on obtaining approval for, and using, a turning area for vehicle transporters; without such an arrangement, the tenants knew that the planning authority would object to deliveries via the public highway.
When the lease began, the tenants were able to use some adjacent scrubland for deliveries, but this had to stop when the scrubland was brought back into productive use. As a result, transporters were forced to park on the road – and the local authority served a breach of condition notice on the tenants.
The tenants tried unsuccessfully to resolve the problem before serving a break notice on their landlord. The landlord claimed that the notice was invalid. It relied on a provision in the break clause requiring the tenants to use all reasonable endeavours to secure planning consent for their use and pointed to breaches of various other covenants in the lease as well. Unsurprisingly, it complained that the tenants were in breach of their repairing obligations; landlords often rely on breaches of repairing covenants to good effect to defeat conditional break rights.
The court ruled in favour of the tenants on every point but the last. The judge rejected the landlord’s argument that the requirement to use all reasonable endeavours to secure planning permission to use the property for car sales meant that the tenants were under an obligation to construct a turning area on their own land. The judge accepted that this would reduce the utility of a significant part of the site – and went on to dismiss the landlord’s complaints about past breaches of other covenants on the ground that a purely historic breach of covenant, with no continuing consequences, should not preclude the exercise of the break right.
The judge even rejected the landlord’s complaints that the tenants had failed to decorate the property in the manner required by their lease. However, he did accept that the tenants had failed to keep the fencing in proper repair because they had patched holes in it with sheeting. The tenants argued that they had done enough to comply with their obligations. The patch repair might not have been what the landlord would have chosen, but the lease did not require them to carry out repairs using methods preferred by the landlord. However, the judge decided that the tenants should have made repairs that were consistent with the fencing that was there. Consequently, the break notice was ineffective and the lease remained in force.
The law is clear – but the phraseology that we use may not be. So perhaps it’s time to find another phrase to describe a conditional break right? Rights that are so easily defeated are really not rights at all.
Allyson Colby is a property law consultant
