A landlord was left to count the cost of failing to persuade the Court of Appeal that a tenant’s failure to adhere to the terms of a break agreement negotiated between the two parties meant that the agreement wasn’t valid.
The tenant, who had two adjacent industrial units in Hounslow, wished to end its leases and served on the landlord the necessary notices to exercise its option to break them. Negotiations were concluded regarding the dilapidations with the effect that the tenant was released from its obligations under the dilapidations clauses provided that it kept the units in no worse condition until it vacated the premises. The tenant also agreed to pay £172,000 for reinstatement of the premises.
At the appropriate time, the tenant failed to give vacant possession of the premises to the landlord. The landlord claimed that this meant that the break agreement was invalid, leaving the tenant liable to comply with the conditions of the original leases. The most obvious effect of this would be that the tenant would be responsible for paying over £300,000 in additional rent – which would be a stroke of luck for the landlord in what was a difficult rental market.
The court ruled that the tenant had failed to comply with the conditions of the break clauses in the leases, but that the break notices given were still sufficient to break the leases.
On appeal, the Court of Appeal ruled by a majority decision that the effect of the settlement agreement was that the leases were brought to an end on the agreed date, whether the tenant gave vacant possession or not. The break agreement had clearly been intended to crystallise the respective positions of the landlord and tenant at the date of the break and modified their respective responsibilities accordingly. The breaches did not invalidate the break agreement, but instead gave rise to a separate claim for damages.
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