Break Clauses – Traps for the unwary!

A recent case highlights the importance of clearly and carefully drafted break clauses in leases to ensure certainty as to what is required to make a break notice effective and the requirement to consider the break clause in conjunction with any other notice provisions in a lease.

In Orchard (Developments) Holdings plc v Reuters Ltd [2009] EWCA Civ 6, the Court of Appeal held that a tenant’s break did not become retrospectively effective because the landlord had acknowledged receipt of the break notice after the break date had passed.

In this particular lease the tenant was entitled to terminate the lease at the end of the 5th or 10th year of the term on 6 months prior written notice. Service of the notice was governed by the general notices provision. The general notices clause provided that a notice was valid if the recipient acknowledged receipt (regardless of how the notice was served).

The landlord had appealed against an earlier ruling that the tenant’s break notice was valid and that the tenant had been entitled to terminate the lease because the landlord had acknowledged receipt of a notice (although unintentionally and almost a year after the break date). It did not matter that the tenant’s break notice had been served outside the deadline imposed by the break clause itself.

The Court of Appeal allowed the landlord’s appeal on the basis that the acknowledgment after the break date was too late to render the break notice valid.

While the facts of this case were unusual it is a useful example of how a court is likely to construe a break clause strictly and to deem time to be of the essence in relation to service of a break notice (even if not expressly stated) and to construe break clauses to favour certainty rather than flexibility.

New scheme to replace CORGI registration

From 1 April 2009, landlords and employers should ensure that people carrying out work on gas appliances are registered under the new Gas Safe Register. CORGI registration will no longer carry any statutory force. There is no grace period.

In the commercial sector, failure to check that an installer is registered under the Gas Safe Scheme could mean a breach of the Building Regulations 2000 and Regulation 3 of the Gas Safety (Installation and Use) Regulations 1998.

In the residential sector, as well as potentially being a breach of the Building Regulations 2000, residential landlords (including those in the social housing sector) may breach Regulation 36 of the Gas Safety (Installation and Use) Regulations 1998 if their regular gas appliance checks are carried out by a person who is not registered on the Gas Safe Register.

Retail Service Charges, What Constitutes "Promotion" Costs?

In a recent High Court case Boots UK Limited v Trafford Centre Limited [2008] EWHC 3372 (Ch), it was ruled that a landlord could fully charge the cost of providing entertainments, Christmas decorations, a Santa’s grotto and a large permanent television screen to its shopping centre tenants by way of a service charge, as these items were deemed to be ‘facilities, amenities or attractions.’

The Tenant argued that these items were "Promotions" which were defined in the Lease as "advertising and other forms of promotion of the Centre intended to bring additional custom to the Centre...“ The benefit to the Tenant of arguing that these were promotions rather than something else was that the Lease specified, firstly, a cap on the cost of Promotions and secondly, a provision stating that the Landlord would contribute 50% towards the cost of the same.

This decision is relevant to retail tenants of shopping centres. The message to the cautious tenant is to protect itself by drafting appropriately where it intends that the cost of facilities, amenities or attractions as well as promotions will be shared between Landlord and Tenant.