Break Options – Another recent harsh lesson for commercial tenants | JS Gollogley Solicitors

Tenants of commercial properties should be aware that an option to break a lease will frequently come with terms and pre-conditions, that must be closely adhered with in order to secure an early termination of their lease. Many tenants and their advisors underestimate quite how closely this adherence must be. The very recent English case of Avocet Indstrial Estates LLP v Merol Ltd & Anor underscores just how harsh the outcome for a tenant can be where there is not strict compliance with the terms of a break option.

In that case the tenants exercise of a break option was frustrated because he had failed to pay £130 in default interest which accrued because prior payments of rent had been late, even though the interest was not claimed by the Landlord at the time. Under the terms of the lease (and this is also the common position in Ireland) rent and interest was due and payable whether or not a demand for same was issued by the Landlord. The Tenant has reportedly now found itself liable for another £300,000 in rent because of this judgment.

The case also considered the situation where a break option requires payment of a penalty sum by the Tenant as part of the conditions to be satisfied in order to exercise the break option, and whether the Landlord would have to hold cleared funds in his account by the relevant date for payment in order for the Tenant to ensure he had complied with this condition? The Court held that payment by cheque does not constitute legal tender. So unless the lease clause explicitly provided for payment by cheque, or the Tenant could show that the Landlord by his prior conduct had displaced the general rule (which was shown successfully in this case), then payment would have to be made in such a way to ensure that the Landlord held cleared funds by the relevant date.

Tenants and their advisors ought to fully review prior to exercise the terms of their lease as well as the break clause and ensure all relevant pre-conditions are complied with. One would like to think that common sense and fairness might apply in situations where only the most minor monetary loss has been suffered by the Landlord if pre-conditions to a break option are not strictly complied with by the Tenant, but the Avocet case is testament to the fact that this cannot be relied upon.

Whilst this is an English case, Irish law in this area is similar to that of England and Wales and UK case law is frequently cited as precedent in Ireland. As to the Irish position, if it is brought to hearing, the current Commercial Court dispute between Mr Denis OBrien and BT Communications Ireland may provide a timely review of the state of the law in Ireland generally. Media reports suggest that this dispute revolves around the exercise of a break option by BT contained in a lease of property in Grand Canal Quay, Dublin.

For more information please do not hesitate to contact us. This article may contain general information of interest of current legal issues, but does not constitute legal advice.

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