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Breaking point

Social landlords with diverse property portfolios need to be aware of complications relating to commercial leases, says Neil Ham in a article for Inside Housing.

Social landlords often own blocks of accommodation with retail shops and participate in mixed-use schemes involving commercial lettings. As property management grows in importance, often due to financial constraints, it is vital for landlords to be aware of potential complications relating to commercial leases.

The case of Avocet Industrial Estates LLP v Merol Limited makes the situation starkly clear. The tenant’s break notice – terminating the lease early – was invalidated because of about £100 in late-payment interest. On that small debt turned the best part of £1 million in future rent and the legal costs in the High Court and then the Court of Appeal. The trial judge accepted the result, which went against the tenant, was ‘harsh’. The case also decided if the landlord deliberately withheld the information about the interest arrears it would have been ‘estopped’ (prevented from relying on the tenant’s breach).

Below are therefore some key points for landlords to note when negotiating, exercising or challenging break rights:

  • Beware seemingly innocuous steps, such as payment of rent deposit interest, which could operate as an estoppel unless the landlord’s rights in respect of the lease are specifically reserved.
  • If the tenant requests confirmation that it has complied with all pre-conditions, the safest course may be to reply: ‘Please check the position carefully and take your own legal advice if necessary – we are not prepared to assist, our rights are generally reserved and any future silence from us cannot be relied on by you.’

You can also read the article on the Inside Housing website.