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Home | News & events | Legal updates | Personal break rights: Can they be revived?
Personal break rights: Can they be revived?
23 March 2010
The recent case of Norwich Union Life and Pensions v Linpac Mouldings Limited (2009) tested a potential loophole in commercial lease drafting relating to the early termination of a lease
Can a personal break right be exercised or revived after assignment?
The tenant, Linpac, had the benefit of an option to break its 99 year leases and so end them early. That option was personal to it and could not be exercised by an assignee. Linpac had assigned the leases, its assignee went into administration and the premises were left unoccupied. Linpac had residual liability for the tenant's lease obligations.
The assignee tried to assign the leases back to Linpac. In order to do so it needed the landlord's consent but Norwich Union, the landlord, refused on the basis that the break clauses would revive and the landlord would suffer significant financial loss as a result.
The High Court decided three points of significance:
- The break options were personal to Linpac, but because it was no longer the tenant it was not entitled to exercise the options.
The court took the view that it did not make commercial sense for a lease to be capable of termination by someone who had been, but no longer was, the tenant - to justify such an interpretation would require very clear and unambiguous language.
The leases stipulated that certain conditions had to be met before the break options could be exercised. Since Linpac was not in occupation, it was not in a position to satisfy those conditions. It was the current tenant who was able to do so but the current tenant had no right to end the leases. - The break options ceased to exist once the lease had been assigned and would not be revived even if the leases were assigned back to Linpac.
It did not make sense for a break clause to revive on re-assignment. If Linpac had wanted to preserve the benefit of its personal break right, it should have made express provision for this. Alternatively it could have protected its position by subletting the premises instead of assigning them. This would have meant it could relinquish its day to day responsibility for the premises but still retain its rights to end the leases early. - The landlord acted reasonably in refusing its consent to the assignment.
It did so because it feared the tenant would exercise the breaks in the leases and end the tenancies. This would result in a substantial loss of income for the landlord. Although it transpired that this fear was unfounded, the obligation on the landlord was to show that its conduct was reasonable - not that it was correct.
Linpac provides welcome comfort for commercial landlords as they work hard to retain their occupiers while tenants seek early exit opportunities. It is also a reminder of the need to ensure clarity when negotiating and agreeing break terms.
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Peter Swinburn
Associate
T: 03700 86 6743
I: +44 (0)1489 61 6743
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