Tenant Break Right: your right to bring a lease to an early end

Posted 22/10/2013

A tenant break right gives the tenant a contractual right to bring its lease to an end early, usually on a specified date (e.g. halfway through the lease).  This can be very valuable for a tenant because it gives the tenant flexibility, e.g. if the premises become surplus to the tenant’s requirements.However, tenants should be wary of the landlord placing conditions on the tenant’s right to break, for example, making the break right conditional on the tenant paying all rent.  If the landlord imposes any conditions they must be strictly adhered to.  Failure to do so can make the break invalid.  Leaving the lease running and the tenant obliged to continue to pay the rent, in addition to incurring the cost of continuing to comply with the tenant’s obligations in the lease, e.g. keeping the premises in repair. In a recent case (PCE Investors Limited –v- Cancer Research UK (2012)), the tenant had the right to terminate its lease by giving the landlord six months notice.  The break clause also required the tenant to comply with the following two conditions:The tenant must give vacant possession on the break date; andThe tenant must pay the rent payable under the lease up to the break date.It was the second condition that caused the tenant to become unstuck.  The clauses in the lease dealing with rent payment required the tenant to pay the annual rent in quarterly instalments in advance.  The break date fell in the middle of a quarter, so the Tenant only paid up to the break date and not the full quarter’s rent.Many people would think that it was reasonable for the tenant only to pay for what it was getting, but the court held the tenant had failed to validly exercise the break right because it had not paid the full quarter’s rent.  Each case will turn on its own facts, but the case demonstrates that strict compliance with a break condition is essential.It is also worth pointing out that the court also held in this case that the landlord was not obliged to point out the tenant’s mistake.When entering into a lease the tenant should consider carefully any condition a landlord attempts to place on the break right.  It is advisable that a break clause is only conditional on giving written notice e.g. six months prior written notice.  If the landlord insists on the break being conditional on payment of rent then the break clause should make it clear whether this means just annual rent (or includes other sums payable under the lease).  In addition, the break clause should be clear as to whether a full instalment is required or whether a tenant can satisfy the condition by paying up to the break date. Finally, if you are a tenant proposing to exercise a break it is preferable to seek legal advice well in advance of the last date for serving the break notice to ensure that the tenant is in the best position that it can be to comply with all the conditions of a break clause.If you have an enquiry in connection with tenant break rights, please contact Deborah Marshall on 01284 732123, or deborah.marshall@ashtonslegal.co.uk