Disposing of surplus property - what 2012 taught us

As companies continue to look for ways to save money, downsizing of corporate property portfolios remains high on the agenda. Conversely landlords don’t want to suffer another void in this climate and look for ways to retain tenants, often resorting to Court. 2012 saw a number of break cases come before the Courts. Below is a summary of the lessons learnt from these cases in 2012.

Payment of all sums due up to the break date

Often leases make payment of all sums due up to the break date a condition of the break right. A failure to pay will invalidate the break.

A tenant should not assume that a cheque handed over on the last day of the term will be sufficient. To avoid argument any amounts payable should be made in cleared funds. Landlords who have previously accepted rent by cheque may be deemed to have agreed to accept monies due by cheque (Avocet Industrial Estates LLP v Merol Ltd).

If interest is due on late payment under the terms of a lease, a tenant should ensure that there are no amounts due for interest that remain outstanding, whether demanded or not. Any interest owing will invalidate the break (Avocet Industrial Estates LLP v Merol Ltd).

A full quarter’s rent

Often break dates fall between two rent payment dates. If the lease is silent how much rent does a tenant have to pay? In 2012 two cases looked at this point and both concluded that the full quarter’s rent is payable, even if the reservation of rent in the lease says “yielding and paying therefore during the term … yearly (and proportionately for any part of a year) rent…”. It may be that a lease provides for excess rent to be repaid following the successful termination of the term. This however does not relieve from the obligation to pay the full quarter’s rent in advance (PCE Investors Ltd v Cancer Research UK and Canonical UK Ltd v TST Millbank LLC).

Satisfaction of conditions

Often tenants are required to ensure there are no subsisting breaches of leases and that vacant possession is given on the break date to ensure a successful termination. If an agreement is reached with the landlord for a payment in lieu of satisfying the conditions it is important that that payment is made before the break date otherwise the lease will continue. The Court is likely to hold that time will be of the essence for any payment in settlement of outstanding obligations (Intergraph (UK) Ltd v Wolfson Microelectronics plc).

Personal break rights

If a break right is expressed to be personal to the original tenant then subsequent tenants will not be able to take advantage of the option to terminate (Gemini Press Ltd v Parsons).

Some of these cases will be subject to appeal in 2013. However for the time being this is the current position. If you are considering exercising a break right it is important to be aware of the potential pitfalls. If you are a landlord these cases will give more scope for argument.