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“To break or not to break…?”

Posted on Sep 18, 2014 by Jane Ramsay  | Tags: leasehold, property law, real estate, break option, break clause, tenants, tenant rights  | 0 Comments

The Scottish Referendum has made many tenants reconsider their leasehold commitments and check the provisions of any break option that their lease may contain.
The wording of the break clause – (just like the questions on the ballot paper) is crucial in determining whether or not the break can actually be exercised.
A recent Court of Session decision in the case of Arlington Business Parks GP Limited v Scottish and Newcastle Limited considers whether the notices served by the tenants, Scottish and Newcastle Limited, seeking to exercise their break option, were validly  served and effective.
Scottish and Newcastle Limited were tenants under 2 separate leases of office premises in Edinburgh. The leases contained a break clause which gave the tenants an option to terminate the leases  as at 7 May 2013 so long as:(1) 12 months’ notice was given to the landlords; and (2) the tenants were not “in breach ofany oftheir obligations [under the lease in question] at the date of service of such notice and/or the termination date.”
Scottish and Newcastle Limited duly gave the required twelve months’ notice to the landlords. The landlords accepted that the notice had been served, however, they claimed that because the tenants were in breach of their repairing obligations when the notice had been served, the notice was ineffective.
Although Scottish and Newcastle Limited conceded that their repairing obligation had not been met at the date of service of the break notice, they spent over £1m carrying out the necessary repairs in full during the period between the date of service of the notice and the break date, and so argued that this was sufficient to satisfy the condition.
Lord Malcolm rejected the tenants’ argument. Lord Malcolm took the view that the “notice is invalid if the tenants are in breachat the dateofthe notice, or the date of termination, or both.” The court held that Scottish and Newcastle Limited were not entitled to serve the break notices because they were in breach of their repairing obligation at the date the notice was served.
In light of this decision, any tenants seeking to  exercise a break option containing a similar restriction will have to ensure that they have taken all necessary steps to fulfil all of their obligation under the lease when the break notice is served rather than hoping that any wants of repair or dilapidations can be dealt with during the notice period.
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