Avocet Industrial Estates LLP v Merol Ltd & Anor

A contractual break condition requiring payment by a specified date may be satisfied by cheque where the parties’ course of dealing establishes an implied agreement to accept cheques, subject to clearance. A cheque may also constitute payment where the creditor fails to reject it promptly.

Default interest accruing automatically under the lease was payable without a prior demand. Such interest accrued from day to day and constituted a payment due for the purposes of a break condition requiring all sums due under the lease to have been paid. Estoppel required proof of the relevant knowledge, representation or duty to speak. The tenant’s break therefore failed because accrued default interest remained unpaid.

The claimant landlord sought declarations that the first defendant tenant had failed validly to exercise a break clause in a commercial lease. The tenant had served a break notice and, shortly before the break date, tendered a cheque for six months’ rent and vacated the premises.

The landlord challenged the break on the grounds that the cheque was not payment by the break date and that default interest on earlier late payments remained unpaid. The tenant relied on the parties’ course of dealing, acceptance of the cheque, and estoppel. The central issues were whether the cheque satisfied the payment condition and whether unpaid default interest invalidated the break.

1. Clause 45.4.7. The lease contained no definition of payment. The general rule was that payment required tender of legal currency, but that rule could be displaced by express or implied agreement. The parties’ consistent acceptance of payment by cheque from 2005 until October 2007 established an implied agreement that cheques would be accepted, subject to being met on presentation. The landlord’s later request for a standing order concerned late payment and did not clearly terminate that agreement. It did not alter the position merely because the payment was required before a break date. The cheque therefore satisfied clause 45.4.7.
2. Alternatively, the landlord failed to reject the cheque promptly. Having received and considered it on 16 March 2010, and knowing that the break date was the following day, the landlord said nothing until 7 April 2010. On the authorities, the cheque was treated as accepted and payment took effect on tender.
3. Clause 14.1. Default interest was payable automatically when rent or another sum had not been paid by its due date. A prior demand was not a condition of liability. The tenant could generally calculate the amount due without a demand, and the wording did not justify implying such a precondition.
4. Clause 45.4.4. Default interest accrued from day to day. Once accrued, it was a payment due to have been made for the purposes of the break condition. Later repayment claims could not be set off because they arose only after the break date.
5. Estoppel. The landlord had not made a positive representation that default interest was waived or payable only on demand. Nor was there sufficient proof that, before the break date, the landlord knew the tenant was mistaken so as to create a duty to speak. Estoppel by convention also failed because there had been no necessary communication or crossing of the line.

The landlord could not rely on clause 45.4.7, but the tenant owed default interest at the break date and therefore failed clause 45.4.4. The break notice was invalid.