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Break Clause invalid where outstanding interest

April 30, 2012

The recent case of Avocet industrial Estates LLP v Merrol has served as a reminder of how strictly the Courts can enforce any conditions attached to lease break clauses.

The break clause in the Lease provided that the break notice would be of no effect if any rent, defined to include interest payments, remained outstanding. The Tenant had paid the rent but owed default interest on late payment of rent under the Lease on the break date, though the Landlord had not issued any demand for default interest.  After service of the break notice by the Tenant the Landlord later argued that the break clause had not been validly exercised because of the outstanding interest due.

The court found in favour of the Landlord and held that the Tenant had failed to comply with the conditions for breaking the lease despite the amount of interest being negligible. The judge admitted that the result was ” harsh” and that the conditions attached to the notice represented  “something of a trap for a tenant”.

The words of the judge should serve as a warning for all  tenants and the case reaffirms that any tenant should proceed with extreme caution in negotiating break clauses and any proposed conditions attached to them. Any such conditions will be strictly and literally interpreted by the courts.