| Financial News |  | |
| Home |
|---|
| About Us |
| Financial News Latest Articles |
|---|
| Annuities |
| Asset Allocation |
| Corporate |
| Current Issues |
| Economic Issues |
| Independent Education |
| ISAs |
| Investments |
| Market Overview |
| Property |
| Protection |
| Retirement |
| Tax |
| Trusts |
| With Profits |
| ---------------------------- |
| Financial News Archive |
| Our Details |
|---|
| contact Us |
|
New Style Property Trusts. 
It is common to find leases containing break clauses that operate in favour of the tenant given any opportunity to end the lease term early, subject to giving written notice. Whilst the wording of break clauses is often quite straightforward they are sometimes drafted so as to be conditional upon the tenant complying with certain requirements. This need for compliance can make the break clauses conditional and if the tenant does not comply with those conditions the break clause can be ineffective. The case of Fitzroy House Epworth Street (No 1) Limited v Financial Times Limited highlighted the need for the tenant to take care when exercising a break clause. The tenant occupied Castle House under a 16 year lease which was granted on 1st April 1994. The tenant had a break clause that it could operate on the tenth anniversary on 1st April 2004. The rent for the office building was £595,000.The wording of the break clause is quite typical and it required the tenant as a condition of operating the break clause to have ‘materially complied’ with all of the tenant’s obligations up to the break date. The tenant acted in a very prudent fashion and appointed surveyors to advise on compliance with the obligations in the lease some time prior to the break date. The surveyors prepared a schedule of dilapidations and invited the landlord to participate in the process of assessing the dilapidations. The landlord declined to get involved. By 1 April 2004 when the tenant had vacated the premises, over £1,000,000 had been spent on decorations, repairs and renovations to the building. The landlord was not satisfied that the tenant had ‘materially complied’ with all of its obligations and applied to court for a declaration to that effect. The landlord relied on his own surveyor’s schedule of dilapidations which valued the works the landlord claimed as outstanding at over £200,000. The tenant’s surveyors upon receipt of the landlord’s schedule advised the tenant to admit some minor breaches amounting to just over £14,000, but argued that these breaches were not ‘material’ and that the break clause was effective. In the first instance the Judge found in favour of the tenant and the landlord appealed. The lower court assessed the value of the tenant’s breaches which did not exceed £20,000. This figure was not disputed on appeal and the Court of Appeal looked at the effect of the outstanding repairs on the landlord’s ability to re-let or sell the property. Evidence was received from a lettings expert and this showed that the effect of these outstanding repairs would enable an incoming tenant to validly argue for an additional nine days rent free (approximately £15,000). The Court of Appeal held that when considering the question of materiality by reference to a landlord’s ability to re-let or sell the property without delay or additional costs, these breaches by the tenant were not material and that the tenant had validly broken the lease using the break clause. In the Judgment the court went on to set out some principles to be applied to the operation of break clauses:
All too often the operation of a break clause is left to the last minute and undertaken by the tenant without taking advice from his solicitor and surveyor. This course of action can lead to the tenant failing to properly operate the break clause which in the vast majority of cases will be an extremely unsatisfactory outcome. If you require any further information about the services that we provide or would like to review your financial planning position, please contact us |