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A point of interest on lease breaks

The recently reported case of Avocet Industrial Estates LLP v Merol Limited [2011] EWHC 3422(Ch) provides a very harsh reminder to tenants seeking to exercise lease break rights that any preconditions that must be satisfied for the lease to break have to be complied with in full without fail. The tenant's failure to pay interest of only £130 resulted in the lease not breaking on the break date, and the tenant continuing to be liable under the lease for the remainder of the term.

The background facts of the case (the tenant seeking to exercise a lease break right) are extremely common in the existing economic climate, where tenants' rationalisation strategies are leading to substantial numbers of break rights in leases being exercised.

Very often (as in the Avocet case) the right to break a lease on notice is contingent upon all sums due under the lease being paid by the break date.

The two particular questions that arose in Avocet were:

  1. Was a payment of a particular sum by cheque (as opposed to cleared funds) on the break date sufficient to count as the required payment by the break date?
  2. Was the tenant's failure to pay interest on previous late payments of rent a failure to pay the required "all sums due under the lease", even though the landlord had not demanded that interest be paid?

Cheque/cleared funds
In his judgment, the judge reiterated the old common law rule that, if a debt is to be paid by a particular date, it must be paid in cleared funds and not by way of cheque. However, this rule can be found not to apply either following a specific agreement between the parties, or where a course of dealing between them shows that the rule is not to apply.

The tenant in Avocet had originally paid its rent by cheques which the landlord had accepted. For various reasons, the tenant then reverted to paying by BACS. In these circumstances, the judge was able to find that, because the landlord had originally accepted rent cheques, this meant that there was an implied agreement between the parties that cheque payments were acceptable to discharge sums due under the lease, even though the method of rent payment had subsequently changed to BACS.

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