Lexit means Lexit - Triggering Break Rights Effectively 48162316 Lexit means Lexit - Triggering Break Rights Effectively Bryan Johnston Real Estate Litigation Partner 18 May 2017

Overview Key Features Underleases LTA 54 Rent Review Revenue and Registration Exercising the Break Break Conditions Effect of Break Practical Points 21 September, 2018

Break Clause Key Features Purpose Beneficiary of the Break Right Type of Break and Break Date Conditions to Break Notice 21 September, 2018

Underleases Effect of break of headlease on an underlease Underlease terminates (compare to surrender) Regardless of: who terminates whether the underlease enjoyed the consent of the LL Does the undertenant have a claim? Landlord and Tenant Act 1954 Contracting out? Potential solution Drafting Points VP condition Underleases to be outside LTA 54 Underlease length to not exceed the date of the break date Break right in the underlease to ensure VP consistent with headlease break date 21 September, 2018

Landlord and Tenant Act 1954 Excluded Tenancies LTA 54 Tenancies: Landlord's Break Tenant's Break Redevelopment Break Clauses 21 September, 2018

Rent Review Break to allow for termination due to increased rent on review Hypothetical lease Impact of actual Break Clause in hypothetical lease Personal right or successors in title? Break dates in the hypothetical lease 21 September, 2018

Revenue and Registration Stamp Duty Land Tax Break clause ignored Option to renew Rebate? Business Rates Registration Unregistered Land Registered Land Title issues 21 September, 2018

Exercising the Break Who can exercise? Legal Ownership Agency Acting as Agent Joint tenants and Joint Landlords Vanquish Properties v Brook Street [2016] 21 September, 2018

Exercising the Break (cont'd) Service of notice Strict requirements Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] Service on wrong person MW Trustees Limited v Telular Corporation [2011] Break notice incorrectly addressed Notice not served in accordance with break provisions Agent accepted on behalf of Landlord Waiver/Estoppel Friends Life Limited v Siemens Hearing Instruments Limited [2014] Compliance with notice requirements Tenant required to serve notice in a specific form First Instance Court of Appeal Break right is an option Where option contains a condition, condition must be satisfied Strict Interpretation 21 September, 2018

Exercising the Break (cont'd) Method of Service Section 196 Law of Property Act 1925 Mandatory or Permissive? Capital Land Holdings v SoS for the Environment [1996] Claire's Accessories v Kensington High Street Associates [2001] 21 September, 2018

Break Conditions Strict Compliance - no compliance, no break Bairstow Eves (Securities) Ltd v Ripley [1992] T obliged to paint property in last year of term Break conditional on covenant compliance Painted just before the last year commenced Break ineffective When is compliance required? Common Conditions: No outstanding payments; Performance of covenants; Vacant Possession 21 September, 2018

Break Conditions - Payment Avocet Industrial Estates v Merol Ltd [2011] Very minor breach Failure to comply with condition of break Strict interpretation Course of dealings Quirkco Investments Ltd v Aspray Transport Ltd [2011] Insurance rent demanded by LL T claimed not in arrears as LL had not paid premium No liability to pay the premium - LL only allowed to serve demand where it had incurred the premium. PCE Investors Ltd v Cancer Research UK [2012] T to pay 'rents reserved and demanded by this Lease up to the Termination Date' T paid up to the break date Break ineffective 21 September, 2018

Break Conditions - Apportionment Marks and Spencer Plc v BNP Paribas Securities Services Trust Company (Jersey) Limited [2014] Apportionment of rent Break Notice - Rent Payment date for quarter - Break in middle of quarter Quirkco v Aspray [2011]; PCE Investors v Cancer Research UK [2012] - Unless express, landlord entitled to full quarter's rent if break date falls between quarter days. Ellis v Rowbotham [1900] - Apportionment Act 1870 does not apply to rents payable in advance Express provision... Lease - no express apportionment provision; 'no arrears at the break date'; break premium First instance - Implied term Court of Appeal - no implied term Supreme Court - no implied term 21 September, 2018

Break Conditions Performance and VP NYK Logistics Limited v Ibrend Estates BV [2011] No obligation to comply with repairing obligations; VP required Security and workmen on site at and following break date Break ineffective Riverside Park Ltd v NHS Property Services Ltd [2016] Partitioning substantially preventing/interfering with right of possession Lease Code 2007 Main rent up to date; Give up occupation Leave behind no continuing subleases Disputes on repair, items to remove or which have been removed to be dealt with separately Not widely adopted 21 September, 2018

Break Conditions - Waiver Orally, writing or inferred by conduct LL waives by accepting property but only if aware: Of all the material facts Of right to choose between waiving and not waiving The legal effect of waiving or not waiving If LL - avoid any step that could give rise to waiver Keys returned Security measures 21 September, 2018

Effect of Break Lease terminated No withdrawal of notice New Lease arises Consent issues; LTA 54; Release of guarantors; SDLT? No future liability Liability for antecedent breaches T remains in occupation - trespasser - x2 rent 21 September, 2018

Practical Points Know the dates; don't leave it to the last minute. Instruct solicitors early to prepare valid notices and advise on conditions. Check legal documentation - variations?; Notice of change of address?; assignments? Side letters? Ensure all arrears are paid up to date whether demanded or otherwise. If in doubt, pay now (WP), dispute later. Ensure no arrears of interest arising from late payment. If so, pay even if not demanded. Ensure payments made in cleared funds by the break date. Ensure VP on the break date. Do not carry out works if not a condition unless it is certain they will be completed in time. Keep evidence of service and method of service. Audit conditions and ascertain what is required to be done and by when in order for break to be effective. Ask LL to confirm steps T needs to undertake Avoid unintentional waiver 21 September, 2018

Questions ? 21 September, 2018

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