The High Court held in Avocet Industrial Estates LLP v Merol Ltd that a tenant owed default interest on late payments under a lease, even though the landlord had not issued any demand.
The tenant in this case had served a break notice to terminate the lease on 17 March 2010; after this date the tenant paid rent or insurance rent late on three occasions. The landlord did not raise a demand for interest but under the Lease was entitled to do so.
On 16 March 2010 the Tenant sent a cheque for 6 months rent together with the keys. On 7 April 2010 the Landlord wrote saying that the notice was not effective because (i) the cheque was not sufficient as cleared funds were required by the break date and (ii) default interest was outstanding.
The Court held that as the tenant had not made all payments due under the lease as required by the break clause, the right to break the lease had not been validly exercised. The tenant remained bound for the remainder of the lease term, despite the amount of default interest being negligible.
Comment
The judge admitted that the result in this case was a "harsh one" and that the conditions attached to the break clause represented "something of a trap for a tenant". When exercising a right to break in an existing lease, the tenant should check carefully if default interest may be due on past arrears and if so ensure that it is paid.
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