In order to validly exercise a break clause, a tenant must comply with any required pre-conditions, such as having paid the rent and complied with any other lease obligations as at the date of termination.
Since a termination right is a form of option, any conditions must be strictly performed. Even an unwitting, trivial breach can have onerous consequences on the parties, invalidating the intention to terminate the lease. As a result, the courts have adopted an approach whereby they consider whether the tenant has complied “materially” or “substantially” with the lease obligations.
A recent decision, Fitzroy House Epworth Street (No 1) Ltd v The Financial Times Ltd [2005] EWHC 2391(TCC); [2006] 02 EG 112, illustrates the factors that the court will consider when deciding whether there has been material compliance with a repair obligation.
It sets out the standard for “material compliance” by the tenant, including the fact that the “insubstantial” number, nature and value of any outstanding defects would have affected neither the landlord’s ability to obtain a further tenant, nor the market rent. It also makes clear that the landlord must be able to identify which of its interests is legitimately challenged by the tenant’s breach, and guard against the perception that it is being wilfully obstructive for its own purposes.
Suzanne Dray is a solicitor at Mayer, Brown, Rowe & Maw LLP
In order to validly exercise a break clause, a tenant must comply with any required pre-conditions, such as having paid the rent and complied with any other lease obligations as at the date of termination.
Since a termination right is a form of option, any conditions must be strictly performed. Even an unwitting, trivial breach can have onerous consequences on the parties, invalidating the intention to terminate the lease. As a result, the courts have adopted an approach whereby they consider whether the tenant has complied “materially” or “substantially” with the lease obligations.
A recent decision, Fitzroy House Epworth Street (No 1) Ltd v The Financial Times Ltd [2005] EWHC 2391(TCC); [2006] 02 EG 112, illustrates the factors that the court will consider when deciding whether there has been material compliance with a repair obligation.
It sets out the standard for “material compliance” by the tenant, including the fact that the “insubstantial” number, nature and value of any outstanding defects would have affected neither the landlord’s ability to obtain a further tenant, nor the market rent. It also makes clear that the landlord must be able to identify which of its interests is legitimately challenged by the tenant’s breach, and guard against the perception that it is being wilfully obstructive for its own purposes.
Suzanne Dray is a solicitor at Mayer, Brown, Rowe & Maw LLP
