December 12, 2012

Are you exercising properly?

Further case law has shown that a tenant must have his ducks in a row when attempting to exercise a break clause validly.

PCE Investments Ltd was a tenant. As is common, the lease required the tenant to pay rent in advance on the usual quarter dates. Whilst the lease contained a break provision, valid exercise of the break required there to be no rent arrears at the termination date.

PCE served notice terminating the lease as at 11 October 2010. On 29 September 2010 PCE paid rent apportioned up to 11 October 2010 i.e. up to the actual termination date. The landlord’s agent subsequently wrote requesting the rent in advance for the full forthcoming quarter. PCE wrote back saying it had paid rent for its period of occupation and requested confirmation that it had paid the correct amount to exercise the break clause. There was no further correspondence.

The matter went to court on the basis that PCE had not validly exercised a break clause. The landlord’s case was that the full quarter’s rent fell due on 29th September and therefore there were arrears due at the termination date.

The judge gave a firm judgement in favour of the landlord. Notwithstanding that the outcome would be an irrecoverable overpayment of rent, the judge thought what was required was certainty. Where there is a lease obligation to pay rent in advance, the rent is payable in full.

This shows that tenants must follow the letter of the lease if they wish to exercise a break clause. Getting it wrong could result in the tenant being left with expensive unwanted property.

Holmes & Hills has a large team of commercial property solicitors which is recognised as being one of the leading teams in the region by The Legal 500.

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