Property Law

Advice on Specific Clauses

Understanding specific contract clauses such as break clauses and dilapidation points

It is common to require advice on the meaning and application of specific contract clauses. You may want a view simply because the wording is ambiguous, and you wish to understand the position and any risk attached. Or you need clarity to exercise a right pursuant to the clause or because your landlord/tenant is demanding additional payment(s) or obligations given their interpretation of the clause.

With the following matters in particular, regardless of any ambiguity or potential dispute, we would always recommend that you seek legal advice if they apply to you as they are technical and tricky areas of the law.

Break Rights

As a tenant, you want to make sure that you exercise your break right properly, otherwise you could find yourself committed to the existing tenancy, not being able to move and possibly facing double tenancy obligations if you have already committed to a new premises. A landlord will want to check if a tenant has operated their break right successfully to see if they can hold them to the remainder of the full term or obtain leverage for another purpose such as a settlement in lieu of releasing them from the full term.

There are specific rules that are implied by caselaw and statute that are not obvious on the face of the tenancy agreement regarding the contents of a break notice, how the notice should be served, when it should be served, what the correct break date is and how to fully comply with any break conditions. Even the most diligent tenants can find themselves tripping up.

We have vast experience acting for a wide variety of landlord and tenants in respect of:

  • Preparing and serving break notices
  • Reviewing the validity of break notices served
  • Advising as to how to comply with any break conditions
  • Challenging any invalidity or non-compliance
  • Agreeing surrender settlements
  • Navigating Court proceedings relating to break related issues
We suggest reading our blog post Top Three Tenant Pitfalls When Breaking a Lease for further information.

Dilapidations

The term dilapidations refers to the obligations relating to repair, decoration, returning the premises (‘yielding up’), reinstatement of alterations and statutory compliance required to be done at the end of the term in order to put the premises back into a lease compliant state. In the absence of any specific requirements to the contrary or dilapidations being a break condition, generally a tenant has the option to either do the works or not and face a financial claim after expiry of the tenancy which the landlord will kick start via service of a ‘schedule of dilapidations’.

There are different factors that contribute to the outcome of dilapidations liability which are often overlooked including timing and notice provisions in the tenancy agreement, whether there is a schedule of condition, the terms of any licences to alter and the applicability of the statutory cap on damages.

We strongly recommend that you get a dilapidations surveyor on board to assist with the practical side. Regarding the legals, we can assist in the following ways:

  • Advising on the leasehold dilapidation obligations
  • Advising on the timing issues and notices that need to be served
  • Documenting any dilapidations settlement agreed
  • Service of a schedule of dilapidations
  • Advising on the formal procedure pursuant to the Dilapidations Protocol
  • Handling dilapidations related Court claims

Please see our Property Disputes page for more general information on what we offer within the disputes remit.

Legal Considerations

Is there a valid contract?

A contract does not need to be written to be enforceable (except in certain situations eg transfer of land or assignments of IP), though it helps to have the precise terms in writing so that each party is aware of their obligations.
In order for a contract to be valid, it must have the following elements:

1. Offer - This is a statement of terms by which the offeror agrees to be contractually bound

2. Acceptance - The offer must be accepted, and acceptance of an offer must be unconditional

3. Consideration - Each party must exchange something of ‘value’ for a contract to valid. The consideration doesn’t have to be equal, but a contract will not be valid without some consideration.

4. Intention to create legal relations – It must be clear that the parties intend to create legal relations and are aware of their obligations

5. Certainty of terms - In order for a contract to be binding, all material terms must be agreed. If the agreement is uncertain, a court may not be able to enforce it

Terms

The terms of a contract can have differing statuses. Conditions are the most important terms of the contract. A breach of a condition will entitle a party to terminate the contract and claim damages whereas a breach of a warranty will only entitle a party to claim damages.

The contract may set out whether the term is a condition or warranty, or it may be designated in statute (eg Sale of Goods Act 1979). If there is no express classification in the contract or statute, the court will consider the nature of the contract, its subject matter and the surrounding circumstances in determining whether the term is a condition or warranty.

It is also possible to imply terms into a contract, in addition to the terms which are expressly stated. Terms can be implied on the basis of usage or custom, previous course of dealings, the intention of the parties, common law, statute and to give business efficacy. You cannot imply a term if it directly contradicts an express term.

Breach of contract

Any loss that is suffered must be a direct consequence of the breach of contract and have been reasonably foreseeable by both parties at the time the contract was entered into.

Find out how our contract lawyers can help with contractual disputes.

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Other factors to Consider

There may be within the contract a dispute resolution process which you need to follow. This could include a party sending a notice setting out the breaches and requiring the other party to remedy the breaches within a certain period.
If the breaches are not remedied there may be an arbitration clause which applies to the dispute and that process would need to be followed.
A claimant will have a duty to mitigate their loss.
If you are faced with an insolvent debtor, can you rely on a retention of title clause? This operates so as to ensure title to the goods doesn’t pass until full payment has been received so can give you priority over secured and unsecured creditors.
Has liability been successfully excluded or limited?
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News, Insights & Resources
Blog

Dilapidation claims: why tenants should care about dilapidations

When you enter into your commercial lease, you will be signing up to various obligations for repair, maintenance, and decorations during the term. Some of these can be extremely onerous and many tenants will overlook these obligations during the term and only start to think about them once the lease is coming to an end or if they are thinking of leaving at a break point. By this time the liabilities could have grown and leave you having to deal with a large, unexpected amount to pay at the end of your lease.

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15th November 2022

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