MacRoberts Real Estate e-update 11/12/08

OPTION KEPT OPEN FOR ONE LUCKY TENANT

Option (n.) – a power that may be exercised at will within a time-limit.

So says the dictionary. But is a tenant-only option to break a lease exercisable at will? That was the question asked in the recent case of Trygort (Number 2) Ltd v UK Home Finance Ltd, a question which may be of significance to many tenants in the current economic climate.

In that case, a tenant-only break option was expressed such that the tenant would not be entitled to exercise the break option "if the Tenant has been in breach of its obligations to the Landlord" under the lease (our emphasis). It is not uncommon for break options to be fenced by a provision that the tenant shall not be entitled to exercise the option "during any period in which" the tenant is in breach of the lease, or words to similar effect. In this case, however, the words could be interpreted in two ways, either:

1. that the option could not be exercised if a breach had occurred at any time, whether it had been remedied or not; or
2. that the option could not be exercised where there had been a breach which had not been remedied at the time of the attempt to exercise the option.

While acknowledging that the wording used was open to either interpretation, the court held that the only commercially sensible interpretation was the latter. Although a lease obligation had been breached, it had been remedied before it came time to exercise the option, so the tenant was lease compliant at the time of the exercise of the option. The court's view was that an intention to prevent exercise of the option for any breach, whether or not remedied, would have to be very clearly expressed.

Conclusion
A relief for the tenant and some good news, perhaps, for tenants generally, who may be considering exercising their break options in these troubled times. Not such great news for landlords - and yet another reminder that the drafting of commercially significant lease terms must be unambiguous. If not, the court will interpret the terms against the party seeking to rely on them (in this case the landlord), and so as to give the contract commercial sense.

For further information, please contact Laurence Fraser on 0141 332 9988

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