Commercial tenant fails to exercise break clause correctly

The courts are seeing an increasing number of disputes between landlords and commercial tenants over break clauses.

It’s thought the economic downturn is putting pressure on both sides to minimise their financial losses. It means landlords are now more likely to scrutinise tenancy agreements as closely as possible to prevent a break taking place.

A recent case in the High Court involved a dispute over a break clause in a 10-year lease. It allowed for the lease to be terminated by giving six months notice, provided that the rent was paid up to and including the break date, and the tenant paid one month’s rent as a reverse premium.

The tenant decided to exercise the clause and gave six months’ notice up to 22 August, 2012. It paid the quarterly rent due on the June quarter day and then vacated the premises on 22 August.

The landlord claimed the lease had not been terminated because the tenant had failed to pay the reverse premium. The tenant said it was part of its June payment, which should be apportioned as two months’ rent and one month reverse premium.

The High Court ruled in favour of the landlord. It held that the two issues were separate and the June payment could only be attributed to the payment of the rent and service charges.

The conditions of the break clause had not been met and the landlord was entitled to a declaration that the lease had not been terminated.

Please contact Hugh Beeley if you would like more information about the issues raised in this article or any legal matter relating to commercial property law.