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Failure to pay interest invalidated break clause notice

Posted: 2nd February 2012   In: Dispute Resolution, Commercial Property

A court has ruled that a commercial tenant’s break clause notice was invalid because it had not paid the interest that had accrued as a result of late payments.

The fact that the landlord had not sent a demand for payment made no difference.

The case involved a tenant that had taken out a ten-year lease on commercial premises. There was a clause saying the lease could be terminated if the tenant gave three months notice of the specified break date. 

The notice would only be valid if all payments due had been met. 

The tenant subsequently served a break notice together with a letter stating that it was not aware of any breach of the lease. The day before the break date, it delivered a cheque by hand for six months rent, returned the keys and confirmed that it had paid outstanding charges. 

It also stated that it was not in breach of any conditions of the lease and was unaware of any outstanding amounts owing.

The landlord then said that default interest was due as a result of various late payments for rent and other charges. 

The tenant submitted that the landlord couldn’t use the lack of payments as a reason to invalidate the break clause because it had never sent a demand for payment.

However, the High Court ruled in favour of the landlord. It held that the landlord’s failure to seek payment earlier was not relevant. It added that the tenant should have had no difficulty in knowing what interest payment it had to make, even without a demand from the landlord.

Please contact Kevin Walsh if you would like more information about the issues raised in this article or any aspect of commercial property.