Lease Break Clauses – A Warning to Tenants

It is not uncommon in commercial leases to find provision enabling the tenant to terminate the lease early, perhaps after the first 3 or 5 years of the term. Generally, such a clause will contain fairly standard conditions, including a requirement that at the relevant break date, all payments due under the lease must be up to date.

In a recent High Court case the tenant’s break notice was held to have been invalid despite the fact that the actual rent was fully up to date at the break date. This was because the tenant had often paid rent late and despite the fact that the landlord had never demanded interest on late payments, as the lease did provide for interest to be paid, the landlord successfully argued this to be money payable under the lease, resulting in the break notice being invalid.

When drafting break clauses in leases it is possible to attempt to add provision to reduce the risk to the tenant of the break notice failing for similar reasons but tenants seeking to exercise an existing break notice must consider the implications of this case carefully. If there is any doubt as to whether or not interest may be payable under the lease, one potential option could be for the tenant to make an additional lump sum payment in the hope that this more than covers any possible unpaid interest. Whilst possibly not an immediately attractive option, it may well be preferable to remaining on the hook under an onerous lease for another 5 years.