Break Notice Disputes In Commercial Leases

Simon Waterfield
Renters Rights Bill

Break options are sometimes contained within commercial leases to provide a mechanism for the parties (usually the tenant) to serve a notice to terminate the lease before the contractual expiry date.

The right to “break” the lease early usually requires:

  1. A minimum period of notice to be given prior to a pre-defined “break date”; and
  2. A strict adherence to any number of pre-conditions as set out and dictated by the lease.

For the tenant, care needs to be taken when deciding whether or not to exercise an option to break, least not since the break will usually be expressed to be without prejudice to compliance with the tenant’s other covenants including (but not limited to) repairing and yielding up obligations. As such, the tenant needs to satisfy itself that it can comply with any such obligations (which may or may not be linked to the option itself as a pre-condition) prior to the break date to avoid a claim in damages being brought by the landlord after the tenancy has been terminated.

It is also important to note that a break notice, once served, cannot be unilaterally withdrawn or, in other words, once served, the tenant has “fixed in motion” the termination of the fixed term of its tenancy. Whereas there is some judicial disagreement as to the consequences of a “consensual” withdrawal (i.e. a withdrawal of the notice with the consent of the landlord, tenant, and where applicable, any guarantor) that is outside the scope of this article. The writer is, however, happy to advise on that specific point upon enquiry.

Compliance with conditions

As we have said, the lease will specify the requisite period of notice and any pre-conditions that will attach to the break.

Any requirements as to the timings and form of delivery (which is usually, but not always, by way of recorded or special delivery to the landlord’s registered office) of the notice must be strictly adhered to. If the minimum notice period is not given, then the break will generally be ineffective at the outset.

As to the other pre-conditions, these again must be strictly adhered to and failure to do so will again render the break invalid. Sometimes, the pre-conditions are easy to interpret such as the requirement that all rent is paid up to date as at the break date. Others, however, may be less clear or particularly onerous but, generally, they will still be interpreted strictly in favour of the landlord. Therefore, taking sound advice in good time (both in a legal and surveyor-led sense) is essential before any notices to break are served.

Where the landlord is failing to engage (which is not in itself uncommon), it is sometimes possible to construct an argument based upon the principles of waiver/equitable forbearance/promissory estoppel as recognised by Bingham J in the case of Tradax Export SA v Dorada Compania SA (the “Lutetian”) [1982] 2 Lloyds Rep 140 to compel the landlord to clarify the scope or extent of the obligation in question.

The key to this kind of argument is the presentation of a proposal by the tenant to the landlord which, in the tenant’s mind, satisfies the unclear pre-condition. If that interpretation is in fact incorrect and the landlord, in turn, fails to correct the tenant, they may be estopped from relying upon the tenant’s non-compliance with that pre-condition in the context of the break.

The above principle was explained in the more recent case of Avocet Industrial Estates LLP v Merol Ltd [2011] EWHC 3422 (Ch) as follows:

“…if a tenant communicates a state of affairs as properly understood by them to the landlord (for the purposes of relying on a break provision) and the landlord knows that the tenant’s understanding is mistaken, they would be under a duty to correct the tenant’s mistaken belief if it wished to subsequently rely upon any alleged breach of the tenant’s obligations in seeking to invalidate their break.”

That said, each case will inevitably turn on its own facts are there are seldom “one size fits all” arguments. It is therefore essential that advice is taken at the earliest possible opportunity.

How can we help?

For more information concerning the subjects discussed in this article, please contact a member of our expert Dispute Resolution team in Derby, Leicester, or Nottingham on 0800 024 1976 or contact us via our online form.

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