Undemanded Liability Scuppers Break

July 23, 2013

Undemanded Liability Scuppers Break

A recent dispute involving the validity of a break notice given by a tenant should sound warning bells for both landlords and tenants.

The tenant had a history of occasional late payment of rent. The landlord had not made anything of this and, in particular, had only sought interest to which it was entitled due to the late payment on two occasions. In both cases the interest was paid.

The lease required that for a valid break notice to be given, all outstanding charges had to have been paid up to date as of the break date. When the tenant decided to exercise its right to break the lease, it paid by cheque (as was its usual practice) the six months’ rent due. This was paid the day before the break date. In the view of the tenant, all charges had therefore been settled and there were no sums outstanding.

The landlord disputed this, arguing that receipt of a cheque does not represent receipt of cleared funds (so the payment was late). The landlord also argued that interest on prior late payments was due (and was therefore an outstanding charge), despite the interest not having been demanded.

The court accepted the tenant’s argument that where the landlord had normally accepted payment by cheque it could not subsequently demand cleared funds instead.

However, on the other point, the tenant lost. The lease did not specify that the landlord had to issue a demand for interest for it to be due. The tenant could have easily calculated the interest due, but did not. The interest was due and had not been paid.

The break notice was therefore ineffective.