A number of leases of commercial premises contain break clauses in favour of the tenant that can only be exercised on the performance of specified conditions. Many tenants are now seeking to operate such clauses in order to take advantage of the current ‘tenant friendly’ market.

At the same time, landlords faced with the prospect of re-letting premises in the current market, are becoming increasingly litigious when dealing with a tenant seeking to operate a break clause. In three recent cases, landlords have found to their benefit that the court continues to take a strict approach to the operation of break clauses and the conditions attached to them.

Conditions requiring ‘payment of all rent’ may include sums beyond the break date

PCE Investors Limited v Cancer Research UK [2012] EWHC 884 (Ch)

Where a lease provides for payment of rent quarterly in advance and a break clause would operate to terminate the lease in the middle of a quarter, the tenant must pay the landlord the whole of the last quarter’s rent, regardless of the fact they would not be in occupation for part of that period.

Where payment of sums due is a condition of the break clause, failure to pay the full sum will result in the tenant failing to exercise the break clause.

In the case in question, the tenant served notice to break the lease on 11 October 2011 and on the next quarter day, paid rent up to the break date. The landlord later argued that the lease had not been validly broken as the tenant had not complied with the condition in the lease that stated for the break to be valid, the tenant must pay ‘the rents reserved and demanded by this Lease up to the Termination Date’. The court agreed with the landlord.

As a separate point, the court also held, that as the landlord had served a demand for the full quarters rent, the fact that he had failed to respond to the tenant’s request to clarify the sum payable, did not give rise to any estoppel argument that could be relied upon by the tenant.

Conditions requiring ‘payment of all sums’ may include interest on late payments

Avocet Industrial v Merol [2011] EWHC 3422

Where a break clause has as a condition that the break notice will not be valid if ‘any sums due to have been paid on or before the break date have not been paid’. The court has included within ‘any sum’ the non-payment of interest on late payment.

In this case, the landlord (having reviewed all previous payments of the tenant back to the start of the lease) sought to argue that the break clause had not been validly operated as the tenant had previously paid rent late and had not paid the interest due on late payments of rent.

The court agreed with the landlord and held that the break right had not been validly exercised, even though the interest on late payment sums had not been demanded and amounted to only £130.

Agreements to vary break conditions also require strict compliance

Intergraph (UK) Limited v Wolfson Microelectronics plc [2012] EWHC 528 (Ch)

Finally, if a landlord and tenant agree a variation to the conditions of the break clause, the likely interpretation is that the terms of that settlement will be as strictly interpreted as the conditions on the break clause.

In this case, the landlord entered into an agreement to accept a payment of an agreed sum from the tenant in lieu of a condition requiring reinstatement works at the property. The payment was due to be made by a specified date.

Due to an administrative error made by the tenant, the agreed sum was not paid by the specified date. The court, having considered the wording of the agreement and its clear references to the conditions of the break clause, held that the agreement was not an acceptance of the termination of the lease and was worded so that the termination was conditional upon payment of the reinstatement sum.

As the reinstatement payment was not made on time the landlord was not obliged to accept that the break notice was effective.