Break clauses in commercial leases

The High Court, in a case where a tenant having paid rent for a full quarter exercised a break-clause part way through the quarter, has implied a term into the lease entitling the tenant to a repayment of rent from the break date to the end of the quarter. The decision is a departure from the widely-accepted view that, in the absence of an express provision, a tenant will not be entitled to a refund of any rent paid that relates to the period after a break date.

Despite this decision, tenants should be advised to ensure that the terms of a lease with a break clause expressly provide for a repayment of rent from the break date to the next quarter day, if this is intended. This is particularly important if the exercise of the break clause is conditional on the tenant paying a full quarter’s rent.

This checklist highlights the practical issues that a tenant should consider when exercising a break clause in a commercial lease.