Real Estate Tip of the Week: Unenforceable Side Letters – Don't Get Carried Away - DAC Beachcroft

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Real Estate Tip of the Week: Unenforceable Side Letters – Don't Get Carried Away

Published 3 April 2017

It can be a useful 'stick' to make concessions dependent on performance by the tenant but a recent case highlights the need to avoid imposing on a tenant an obligation to pay additional sums following breach that are entirely disproportionate to any loss suffered. Such provisions, although attractive to landlords for obvious reasons, might be unenforceable as a matter of law, leaving you with no 'stick' at all.

In the recent case of Vivienne Westwood Limited v Conduit Street Development Limited a side letter containing a rental concession and cap provided that if the tenant breached any of the terms of its lease the concession and cap ended and the tenant was required to pay the rent reserved by the lease from the start of the lease term which was significantly higher.

When the tenant failed to pay its rent on time the landlord argued that it was entitled to terminate the side letter and that the increased rent was payable from the start of the lease.

The tenant argued successfully that the increased rental payment was disproportionate (exorbitant or unconscionable) compared with the potential loss that flowed from the breach. Consequently the court held that the termination provision was penal and the purported termination following non-payment of rent was unenforceable.

Authors

Richard Marshall

Richard Marshall

Bristol

+44 (0)117 918 2296

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