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Break Notices: NYK Logistics v Ibrend Estates

23 September 2011

In this article,first appearing in the 11 August 2011 edition of FM World Magazine,we look at the case of NYK Logistics v lbrend,one of the many cases before the courts at the moment concerning failure by a tenant to properly exercise a break option.

What happened?

NYK was Ibrend’s tenant of a warehouse which it held pursuant to a lease which contained a break clause. The break clause required NYK to deliver up vacant possession of the premises on the break date of 3rd April. There was no requirement to offer up the premises in full repair although NYK chose to deal with any necessary repairs before the break date.

Before the break date the landlord was not particularly proactive in assisting the tenant in identifying the necessary repairs that needed to be carried out but ultimately, on 1st April, the two parties’ surveyors met. Whilst they agreed that NYK had substantially complied with its repairing obligations, it was clear that the outstanding matters could not be completed by the break date, just two days later, but could be completed shortly afterwards.

NYK carried on effecting the repairs and on the break date, towards the end of the working day, NYK sent an email to Ibrend’s agent saying that they had been attempting to handover keys but had not been able to make contact. They asked the agent to contact them as soon as possible the next week.

NYK retained their security guard at the premises over the weekend and the following week, NYK’s contractors completed the remaining repairs.

Ibrend claimed that the lease was continuing and the break had not been exercised for a variety of reasons, mainly the retention by NYK of their contractors in the warehouse from 2nd to 9th April to complete repairs.

What did the Court say?

The court agreed with Ibrend that vacant possession was not offered up and therefore the break was not exercised. The Judge said:

“NYK’s misfortune was that by 3rd April it could raise no response from Ibrend. In that respect I have some sympathy for NYK, but not a lot. The terms of its own proposal show that it knew that in order not to prejudice the operation of the break option it needed to obtain Ibrend’s agreement as to what it wanted to do. It ought also to have known that when the agreement was not forthcoming by 3rd April the only safe course was to move everyone out of the warehouse on Friday…[and to] deliver the keys to the agent. Had NYK taken legal advice on 3rd April as to what to do, I should be surprised if such advice would have been otherwise than that NYK should act along the lines I have suggested”.

What does this mean?

The moral of the story is clear: however commercially sensible a particular course of action may seem, break options are legal rights which are construed in accordance with the law and not in accordance with commercial pragmatism.

Source:

NYK Logistics (UK) Limited v Ibrend Estates BV [2011] EWCA Civ 683

This article first appeared in FM World, the magazine of the British Institute of Facilities Management.