Break clauses not broken hearts!

My third post concerns something of mutual importance to both Landlords and Tenants- the operation of break clauses under the lease (pay attention!).

As I have stated in a previous post, there is nothing worse for a Landlord than an empty (or void) property. Empty properties mean no Tenants. No Tenants mean no rent. No rent means no income. No income means a pretty screwed Landlord. It also means lots of boarded up shops on our high streets. Everyone loses out.

Therefore, in this climate your average Commercial Landlord will feel rightly peeved when a Tenant wants to break the Lease and walk away from the property. Most Landlords will scrutinise the Lease carefully and be looking for any opportunity to thwart the Tenant.

This point was demonstrated in the recent case of Avocet Industrial Estates Ltd (Avocet) v Merol Ltd (Merol). Avocet was the Landlord and Merol was the Tenant. In this case, Merol could not break the Lease and walk away unless it had paid 'all sums due' under the Lease. This included any interest on any late payments made by Merol under the Lease. Avocet argued that the Lease was not broken because Merol owed Interest arrears under the Lease. It should be noted that Avocet had not made a formal demand for the interest previously.

The result? The court ruled in Avocet's favour. Merol was liable for a hefty interest bill regardless of the fact that Avocet had not made a formal demand as per above! Merol could not operate the break clause and was stuck in the property!

So what lessons can the Landlord and the Tenant learn from Avocet and Merol's travails?

Landlords- make sure that Lease clauses regarding payment of 'all sums', in relation to a break clause, is drafted as wide as possible. If the Tenant does try to walk away from the property, try to ascertain whether or not the Tenant is liable for interest under any late payments they may have made in the past. When you enter into a new Lease with a Tenant, you should record all payments that the Tenant makes. That is the method of payment and the date. Enter it into Sage, MS Money, QuickBooks, whatever suits you.

Tenants- it is very important that you also keep records of all payments that you make under the Lease. Record the date of payment and the method. Try to get a receipt from the Landlord if you can. Keep the receipts. Make records in MS Money, Sage etc.

By following these steps, Landlords and Tenants will avoid the heartache and aggravation of litigation. If both parties can point to evidence, as to when and how payments were made, this will avoid those costly words- 'see you in court.' Litigation is a waste of time and money for both parties. If it is time to say goodbye, a good Lawyer will want to see an effective operation of the break clause and not broken hearts and bank accounts! I know I would! But then- I am not a Lawyer. Yet...

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