Leases: exercising a break right effectively

Commercial tenants should be made aware of a High Court decision which held that a tenant failed to exercise a break right effectively when it only paid rent up to the break date.

In this case, the break clause required the tenant to give vacant possession and pay “the rents reserved and demanded by this Lease up to the Termination Date”. However, the court held that the tenant had failed to terminate the lease as a full quarter’s rent fell due a few weeks before the termination date. It was payable in advance, and on the due date it could not be certain that the lease would terminate on the Termination date, as the tenant might not comply with the other elements of the break clause.

If a tenant is unsure whether rent payable in advance should be apportioned when seeking to exercise a break right, it is advisable for them to pay the full rent and any other sums due, to ensure that a break right is effectively exercised. Once the lease has been properly terminated, the tenant can seek to reclaim sums which it believes should not have been paid.

Our checklist summarises the practical issues a tenant should consider when exercising a break clause.