Break Clauses and Rent Payable under Leases
December 11, 2014
Marsons Solicitors have specialist commercial property solicitors who advise on all types of commercial leases.
In a recent case the High Court held that a tenant who had only paid rent up to the termination date set out in the break notice had failed to comply with the break clause in the lease.
Where a break clause is included in a fixed-term lease which allows either party to terminate the lease early, any conditions attached to the right to break must always be complied with.
In this case the tenant (T) had the right to terminate his lease early by serving a six months’ notice. Under the provisions of the break clause, this was conditional on T giving vacant possession and paying the rent up to the termination date.
As is usual in commercial leases the lease provided that rent was to be paid, in advance on the usual quarter days.
T gave notice exercising its right to terminate as provided for by the lease. Rather than pay the usual quarter’s rent, T paid the rent that related to the period from 29 September 2010 to 12 October 2010 (the termination date) and followed this up with an email asking the landlord (L) to confirm that this was correct.
L did not respond until after the termination date, when its solicitors wrote to T stating that T was in breach of the provisions relating to the exercise of the break option as T should have paid the full quarter’s rent by the termination date.
T denied this and argued that as L had not responded to T’s enquiry pertaining to the correct rent due, L was now estopped from arguing that the purported break was ineffective.
The Court decided that T had failed to comply with the conditions relating to the exercise of the break option and therefore had failed to terminate the lease. The decision was based on the fact that under the terms of the lease a full quarter’s rent fell due and payable in advance on 29 September. As the termination of the lease was dependant on T complying with all conditions attached to the exercise of the break option, on 29 September there was no certainty that the lease would be properly terminated and therefore L was entitled to the full quarter’s rent due at that date.
With regards to the argument of estoppel, the court determined that L had discharged his duty by serving its usual Rent Demand for the September quarter and that there was no further duty to point out T’s error.
Care should therefore always be taken when exercising a break option. If there is any doubt whether the full rent should be paid, a cautious tenant should err on the side of caution and pay the full rent together with any other sums that may arguably be due under the terms of the lease.
The tenant can of course subsequently make a claim that any overpayment that should be reimbursed, however this right would be dependent on the express provisions of the break clause.
The information contained in this article is intended for general guidance only. It provides useful information but it is not a substitute for obtaining legal advice as the articles do not take into account specific circumstances. So do please Contact US for legal advice on the issues raised.