Unlucky Break for Landlords?

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23 June 2010

The Government’s Efficiency and Reform Group recently announced - in an attempt to cut the public rent bill - that no new property leases or lease extensions will be signed on behalf of Government departments or their quangos without Treasury approval.  The Group would also like public sector bodies to exercise any lease break options available to them in the current financial year.  There are an estimated 644 Government leases which either expire or contain a break clause operable in 2010/11. As a consequence, many landlords might expect to receive a break notice from their Government tenants and to be dealing with dilapidations claims and refurbishment before long.

The exercise of break clauses has always been fertile ground for litigation, particularly at times  when re-letting is likely to be difficult.  Either landlord or tenant can easily come unstuck unless they take great care to preserve their rights, whether in exercising a break or in their actions following receipt of a break notice. Recent cases include:

Bordcrest Properties v. Development Planning Partnership [2010] EWHC 644 (Ch) which illustrates the risk to a landlord of entering negotiations with the tenant over repairing liability after a break notice was served. By taking a co-operative approach to dilapidations, the landlord may have given the tenant an argument that it had waived the condition that the break was subject to compliance with the tenants covenants in the lease; and

Hotgroup Plc v. Royal Bank of Scotland[2010] EWHC 1241 (Ch), where the tenant’s chance to break the lease was thwarted by failure to serve break notice on the managing agent as well as the landlord, as required by the lease.

These decisions reinforce the need for caution and timely legal advice when dealing with options to break a lease.

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