Tenant Denied Right to Break Lease Because of Late Payments

July 22, 2013

Tenant Denied Right to Break Lease Because of Late Payments

A tenant that was seeking to break a lease has surprisingly been found by the court to have failed to give a valid break notice because it had not paid sums that were outstanding but which had not been demanded by the landlord.

The lease stipulated that there were five components of the rent. These were:

  1. the annual rent;
  2. a service charge;
  3. an insurance rent;
  4. all interest payable under the lease; and
  5. all other sums due under the lease.

At the time the notice to break the lease was given to the landlord, there were no arrears of rent. However, the lease did include a clause that allowed interest to be charged on rent paid late. It also included a clause that invalidated a break notice if ‘at the Break Date any payment under this lease due to have been paid on or before that date, has not been paid…’.

In addition, when the lease was entered into, a deposit of nearly £20,000 was paid into an account. The interest on the account could be drawn by the tenant provided that the tenant was not in default with regard to any payment. If the tenant was in default, the landlord had the right to draw on the account in certain circumstances.

During the course of the tenancy, the tenant made several payments late. Only two invoices for interest were issued by the landlord. Both of these were paid by the tenant, albeit with clear misgivings. In other cases, invoices for the interest due on late payments of rent and charges had not been issued.

When the tenant sought to break the lease, the landlord pointed this out to the tenant and rejected the break, returning the tenant’s final cheque and the keys to the property, which the tenant had enclosed with the payment.

The circumstances of the case were rather convoluted, but the High Court ruled that the landlord was not correct in rejecting the tenant’s cheque. However, as regards the payment of interest on late payments, it rejected the tenant’s argument that it was not liable to make a payment unless and until it received a valid demand for such a payment.

At the date the tenant sought to break the lease, interest of about £130 was due under the lease. Despite not having been demanded by the landlord, this was sufficient to invalidate the tenant’s notice to break the lease.