Landlord and tenant update – hard times, strict compliance

Purpose - Difficult economic and trading conditions make lease break options a point of significant legal tension between commercial landlords and tenants. For a tenant, the ability to break a lease provides a means of controlling costs and an exit from liabilities. For landlords, the loss of a tenant's covenant means an immediate adverse effect on the reversionary value of the property. The purpose of this paper is to examine recent English court rulings to highlight the need for strict compliance with break conditions if a tenant is to succeed in ending its liabilities. Design/methodology/approach - The paper discusses recent rulings to assess the extent to which judicial interpretation of break clauses continues to favour landlords, and whether landlords' conduct in negotiations or correspondence leading up to the exercise of a tenant's break option might engage concepts such as estoppel to bind the landlord to a particular level of compliance or breach. Findings - The paper concludes that the English court continues to apply a strict approach to compliance with break conditions, and that it remains the tenant's responsibility both to determine what needs to be done by way of compliance and to ensure that those steps are taken. Originality/value - The authors place the most recent rulings on the perennially vexed issue of compliance with break conditions into a broader context, demonstrating that the judicial approach remains firmly based on the principle that a break option is negotiated for the tenant's benefit, and that any conditions precedent to exercise are highly likely to be construed against the tenant who agreed to a break conditional on anything other than service of notice.