Recent Break Clause Cases (Part 2)
NB This paper should be read in conjunction with Part 1, which summarises some of the mechanics of break clauses that often arise for consideration.
PCE Investors Limited v Cancer Research UK [2012] EWHC 884
Facts: The break clause required T to pay the rents reserved by the lease up to the termination date. Rent was payable quarterly in advance under the lease. T served the break notice and the termination date fell on 11th When it came to paying the 29th September quarter, T paid an apportioned amount, equivalent to the rent up to 11th October, rather than the full quarter. L then wrote to T demanding the full quarter. T then sought confirmation from L that it had paid the right amount for the purposes of the break clause, but L kept quiet. When proceedings were issued both parties sought summary judgment against the other on the issue of the validity of the break notice. T also sought permission to amend to include an argument that L was estopped from denying the efficacy of the break (in the event that it summary judgment application did not succeed).
Held: The break notice was invalid. The break clause required payment of the full amount of the rent and the full September quarter had fallen due on the 29th September quarter day. Permission to amend so as to include T’s estoppel argument was refused on merits grounds. T plainly knew that L considered the full quarter’s rent had to be paid from L’s demand and its subsequent refusal to confirm that T had paid everything. There was no duty on the part of a landlord to correct a tenant who makes a mistake in its break notice.
Avocet Industrial Estates LLP v Merol Ltd [2011] EWHC 3422
Facts: The break clause provided that a break notice was only effective if, by the break date, T had paid all the rent due under the lease and a premium equivalent to six months rent. T served a break notice and the day before the break date delivered a cheque for an amount equivalent to six months rent to the landlord and communicated its belief that it had paid everything else due under the lease. In the proceedings which ensued, the issues were whether the six months rent had been “paid” by the break date; whether as at the break date T was liable to pay contractual interest on late payments of rent and, if so, whether L was estopped from relying on that liability to defeat the break.
Held: T had regularly made payments of sums due under by cheque and an agreement by L to accept payment by this method could therefore be inferred. An agreement to accept payment by cheque displaced the old common law rule that only legal currency was good payment. T was liable to pay contractual interest on late payments of rent at the break date. L was not estopped from relying on those arrears because it could not be shown that L knew that T was mistaken when it made the statement that there were no arrears.
NYK Logistics Ltd v Ibrend Estates BV [2011] EWCA 683
Facts: The break clause provided that vacant possession must be given by the break date for a break notice to be effective. T served the notice and two days before the break date met L at the demised premises. It was agreed that a minor programme of works was required to be undertaken to comply with T’s repairing obligations under the lease. L agreed that it would send someone along to collect the keys from T. In the event, T’s contractors did not in fact complete the works until six days after the break date. In the proceedings, T argued that it had given vacant possession because T was not intending to exclude L during the six day period and their presence was not inconsistent with L’s right to possession. Alternatively, T said that L’s statement that it would send someone for the keys amounted to a waiver of the requirement for vacant possession.
Held (by CA): There had been vacant possession. Vacant possession means what it says – the property must be empty and the landlord must be able to enjoy immediate and exclusive possession. It mattered not that T’s contractors did not intend to exclude L or that they might have left if L had asked them to. Moreover, the statement by L that someone would be along to collect the keys was far removed from that which would be necessary to amount to waiver of the vacant possession requirement and T had in any event not relied upon it.
MW Trustees Ltd v Posel [2011] EWHC 104
Facts: The break clause required T to give six months notice in writing to the landlord. Unbeknownst to T, the reversion was transferred by L1 to L2. When T served their break notice on L1 they were told to send it to L2’s managing agent. T duly did so and received a reply from the managing agent that the break notice was “accepted” by L2. In the proceedings, L2 contended that its managing agent was really only acknowledging receipt of the break notice and that the break notice, having been served on the wrong landlord, was invalid.
Held: The statement that the break notice was “accepted” could only be taken as an acknowledgment that T had sufficiently indicated their intention to terminate the lease. T had therefore assumed that the break notice was valid and acted accordingly. L was therefore estopped from challenging the validity of the break notice.
Hexstone Holdings Ltd v AHC Westlink [2010] EWHC 1280
Facts: Prior to the exercise of the break clause, T informed L that it would be changing its name to that currently used by a parent company and asked for rent demands to be issued in the new name. L complied with the request, but T failed to effect the name change. T then served a break notice which was sent on letterhead of the parent company and expressed to be given for and on behalf of the parent company. L later argued that the break notice was not served by T and was therefore invalid.
Held: The break notice was invalid. It was expressed to be given by the parent company rather than T. The parent company did not have express authority to act on T’s behalf and, on the evidence, none was to be implied. Moreover, the absence of any indication of the parent company’s agency on the face of the notice meant that L could not safely act in the knowledge that the notice was binding on T.
Hotgroup plc v Royal Bank of Scotland [2010] EWHC 1241
Facts: The break clause required the break notice to be served not only on L, but also on the property management company for the purposes of the lease. T served the break notice on L, but not the property management company. T later argued that the failure to serve on the property management company was not fatal to the validity and that the lease had to be construed contra proferentem.
Held: The lease did fall to be construed contra proferentem, but that did not mean that T was exempt from complying with one of the conditions of the break clause.
Standard Life Investments Property Holdings v W&J Linney Ltd [2010] EWHC 480
Facts: A break clause required T to give a break notice to L. L later granted an overriding lease to IL and from that point on T paid rent to IL. T’s break notice was expressed to be given to L. A copy of the break notice was served on IL. But IL later contended that, as it was T’s landlord, the break notice should have been expressed to be given to IL. T argued that L remained the party to on whom the break notice should be served; alternatively, the reference to L was a mistake that would have been obvious to IL and the break notice was therefore valid and effective.
Held: On a true construction of the lease, IL was the party to be served. Someone like L who was no longer the immediate landlord would have no interest in checking that the break clause conditions had been complied with. Moreover, vacant possession could only be given up to IL. The parties would plainly have contemplated that the landlord might change. Therefore a construction which places IL as the party to be served makes far more commercial sense. T’s alternative argument also failed because the reasonable recipient of the letter containing a copy of the break notice would not have understood that the reference to L was a mistake.
Aviva Life and Pensions v Linpac Mouldings Ltd [2010] L&TR 182
Facts: L was T’s landlord in respect of three leases. One lease contained a break clause, the break clause for other two were contained in licences to assign which were granted in 1986. All three break clauses were expressed to be for T’s benefit only. T, with L’s consent, assigned all three leases to an associated company, E. Shortly afterwards, however, E went into administration and ceased to be a member of the T group of companies. E sought, and was refused, L’s consent to re-assign to T. L was (rightly) concerned that if the leases were re-assigned T would attempt to determine them by exercising the break notice. Despite the refusal of consent E executed an assignment to T, and T served break notices. L issued proceedings to determine (1) whether its refusal to consent had been reasonable and (2) whether T could exercise the break options (a) at any time after it had assigned the leases to E and before it had re-acquired them or (b) after it had re-acquired them. L succeeded on all three issues at first instance before Lewison J. T appealed the whole of the decision, but at trial limited its appeal to issue 1(a).
Held, approving Lewison J’s decision: The Court of Appeal expressed, inter alia the following principles: (1) Interpretation of the leases must give effect to the intention of the parties to be ascertained in light of the commercial purpose and context of those documents, and the factual setting known to the parties. (2) The right to bring a tenancy to an end is an incident of the relationship of landlord and tenant, which ordinarily pass with the reversion of the term. (3) An express provision that a party who was no longer the tenant could exercise the break option would be extraordinary, even if technically possible – not only because it is so far removed from the basic principles of such an option but because of the practical difficulties in obtaining vacant possession from the actual tenant. (4) There was no case where the Court had interpreted a break option as conferring a right to break even at a time when the beneficiary was not a tenant. (5) It followed that if there ever were such an intention between the parties it would have to be made expressly and unambiguously clear. These considerations led to the “inevitable rejection” of T’s arguments. For the sake of completeness, it is noted that T lost issue 2(b) in front of Lewison J, and did not revive the issue on appeal, on the basis that it made no commercial sense to impute to L and T an intention that right should revive if T were to subsequently re-acquire the leases. If T wanted to retain the right it had the option of choosing to sub-let instead of assigning. It had not done so and the right was irretrievably lost – Equinox Industrial (GP2) Ltd v Sketchley Ltd [2003] EWHC 2 (Ch) applied.
Joint Authors: Nathaniel Duckworth & Joseph Ollech
We are a set of 10 Queen’s Counsel and 28 Junior Barristers specialising in landlord and tenant and real property law. Members of Chambers provide top-level advisory and litigation services, in England and Wales and abroad. Over the years, members of Chambers have been involved in many of the leading cases in its area of expertise which are set out on individual members’
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