The Practical Lawyer

A reminder of the care needed when exercising a break clause in the lease: when notice must be given; how notice must be served; on whom; and by whom.

Imagine this scenario: in 1981 L lets garage business premises on a 75-year lease to T, for a market premium. But, T disappeared four months ago without explanation, leaving the premises empty, in disrepair, and with unpaid ground rent and service charge. L forfeited the lease by peaceable re-entry without proceedings some three months ago. Can L now refurbish, and re-let, the premises?

A company voluntary arrangement is a rescue procedure under IA 1986. It allows a company in distress to enter into a legally binding compromise with its unsecured creditors (eg reschedule or reduce debts, or change contractual terms – such as rents – with creditors). For a CVA to be approved, it must be voted for by at least 75% (by value) of creditors.

We have recently had two cases on the validity of break clause notices, where the break was conditional on T providing ‘vacant possession’ on the break date. As we have previously noted, it is important to fully comply with lease covenants when exercising a break notice and any suggestion that T has not given ‘vacant possession’ will usually be fatal. The ideal approach is to consult with L beforehand to agree what does, or does not, have to be removed – but, in practice, L will often refuse to co-operate.

Each of these items requires detailed consideration by T (and its own checklist):

Many valuable commercial properties are held by English limited partnerships (under LPA 1907). The management of the business is carried out by the general partner (only). Importantly, because the limited partnership has no legal personality, the general partner must contract as agent on behalf of the limited partnership in any contracts it enters into on the partnership’s behalf.

  It is not uncommon for a break clause to be conditional on T providing ‘vacant possession’ on the break date. Clearly, there can be disputes over what amounts to vacant possession so the best advice is for T to obtain clarification from L of what L regards as necessary to comply with the break condition. But, in practice, L will often refuse to co-operate, which can then leave T in a difficult position.

It is common for commercial agreements to contain clauses saying that no oral variation is allowed, so that any variation must be in writing signed by the parties. But, is such a clause 100% binding?

The answer is ‘no’. While anti-oral variation clauses have a commercial value, and provide the parties with certainty, they do not necessarily reflect the reality of how people do business. In the CA’s view, any anti-variation clause is, like any clause in a contract, capable of variation if the parties agree. Parties are free to choose to vary any provision (‘party autonomy’) and that applies to an anti-oral variation clause.

A tenancy can be surrendered at any time by agreement between L and T. In addition, a surrender can occur by operation of the law even when nothing is agreed or put in writing – and it can occur irrespective of L’s intentions. In practice, the risk is that L will do something in the early days (eg after T disappears or becomes insolvent) without appreciating the legal implications of what they have done, and therefore inadvertently accepting that there has been a surrender of the lease.