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

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

3. Break Clause Key Features
Purpose
Beneficiary of the Break Right
Type of Break and Break Date
Conditions to Break
Notice
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4. 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
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5. Landlord and Tenant Act 1954
Excluded Tenancies
LTA 54 Tenancies:
Landlord's Break
Tenant's Break
Redevelopment Break Clauses
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6. 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
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7. Revenue and Registration
Stamp Duty Land Tax
Break clause ignored
Option to renew
Rebate?
Business Rates
Registration
Unregistered Land
Registered Land
Title issues
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8. Exercising the Break Who can exercise? Legal Ownership Agency
Acting as Agent
Joint tenants and Joint Landlords
Vanquish Properties v Brook Street [2016]
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9. 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
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10. 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]
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11. 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
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12. 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

13. 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
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14. 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
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15. 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

16. 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

17. 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
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18. Questions ?
21 September, 2018

19. Thank you Dentons UKMEA LLP One Fleet Place London EC4M 7WS
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21/09/2018