Landlord and tenant update – hard times, strict compliance

Date01 February 2013
Published date01 February 2013
AuthorMalcolm Dowden,Emma Humphreys
Subject MatterProperty management & built environment
Landlord and tenant update
hard times, strict compliance
Malcolm Dowden
Gwentian Consulting Limited, Reading, UK and
Charles Russell LLP, London, UK, and
Emma Humphreys
Charles Russell LLP, London, UK
Purpose – Difficult economic and trading conditions make lease break options a point of significant
legal tension between commercial landlords and tenants. For a tenant, the ability to break a lease
provides a means of controlling costs and an exit from liabilities. For landlords, the loss of a tenant’s
covenant means an immediate adverse effect on the reversionary value of the property. The purpose of
this paper is to examine recent English court rulings to highlight the need for strict compliance with
break conditions if a tenant is to succeed in ending its liabilities.
Design/methodology/approach – The paper discusses recent rulings to assess the extent to which
judicial interpretation of break clauses continues to favour landlords, and whether landlords’ conduct
in negotiations or correspondence leading up to the exercise of a tenant’s break option might engage
concepts such as estoppel to bind the landlord to a particular level of compliance or breach.
Findings – The paper concludes that the English court continues to apply a strict approach to
compliance with break conditions, and that it remains the tenant’s responsibility both to determine
what needs to be done by way of compliance and to ensure that those steps are taken.
Originality/value – The authors place the most recent rulings on the perennially vexed issue of
compliance with break conditions into a broader context, demonstrating that the judicial approach
remains firmly based on the principle that a break option is negotiated for the tenant’s benefit, and that
any conditions precedent to exercise are highly likely to be construed against the tenant who agreed to
a break conditional on anything other than service of notice.
Keywords Landlord, Tenant,Break, Option to determine, Conditional,Conditions precedent,
United Kingdom,Landlord and tenant act, Tenancy
Paper type General review
Economic downturn breeds litigation. For landlords and tenants a frequent point of
irreconcilable conflict is the exercise of an option to break, allowing the tenant to make
an early exit from its lease and its associated obligations. Increasingly common since
the mid-1990s, break options are among the most hotly negotiated and closely
scrutinised elements of modern commercial leases.
For tenants, the option to break provides a potentially crucial means to control and
reduce operational costs. For landlords, they represent a major risk to the value of a
reversion, leading to letting voids and to the loss of covenant strength. Drafting that
seeks to strike a balance between those competing interests has tended to produce
conditional break clauses. In essence, the tenant is allowed to break its lease if it has
met the conditions precedent specified in the clause. Failure to comply means that the
tenant is locked in until the next break date (if any) or until the end of the term.
The current issue and full text archive of this journal is available at
Landlord and
tenant update
Journal of Property Investment &
Vol. 31 No. 1, 2013
pp. 101-105
qEmerald Group Publishing Limited
DOI 10.1108/14635781311293006

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