Break conditions in a lease: no Court of Appeal ruling on strict compliance

Break conditions in a lease: no Court of Appeal ruling on strict compliance


Author: Jessica Ready

It has been reported in the legal press that the parties in Avocet Industrial Estates LLP v Merol Ltd and another [2011] have reached an agreement in court.

The appeal of the 2011 High Court case took place in October 2012 and a judgment on the commercial impact and legal basis of strict compliance with a break condition had been widely awaited. Unfortunately, this will not be forthcoming.

In Avocet, the High Court held that a tenant owed default interest on late payments under a lease, even though the landlord had not issued any demand for default interest. As it was a pre-condition to the tenant exercising the break clause that it had made all payments due under the lease, the tenant's right to break the lease had not been validly exercised.

Notwithstanding the fact the amount of default interest was negligible - £130 - the tenant remained bound for the remainder of the lease term. The judge admitted that whilst the result in this case was a 'harsh one' and that the conditions attached to the break clause represented 'something of a trap for a tenant', it was a decision it was obliged to reach.

The judge in the High Court decision in Avocet indicated that had the landlord known that the tenant believed it had paid all sums due under the lease, and the landlord knew this to be wrong, the landlord would have been expected to set the record straight.

However, on the evidence, the landlord did not know that the tenant's belief that it had paid all sums due was wrong before the end of the break date - and it did not take advantage of the tenant's mistake.

In fact, the landlord had not considered payments of default interest by the end of the break date and only took the point as a result of legal advice received after the break date.

It therefore remains imperative that tenants ensure strict compliance with all break conditions.