We have seen many cases deciding whether tenants have managed to break their leases during this economic downturn. Many tenants break rights are conditional on rent payment by the break date and the recent case of PCE Investors Limited v Cancer Research UK highlights another danger for tenants.
In this lease the break date fell part way through a rent quarter and the break clause was conditional on rent payment. The tenant served its break notice and then paid its rent up to the date of the break which in this case was on 12 October. The Court was quick to find against the tenant. It had not broken its lease because it had not paid all of the rent that was due on the September quarter day. The event which caused less than a full quarter’s rent to be payable occurred later than the September quarter day.
Break clauses that are conditional on rent payment need to specify that rent is apportioned otherwise the tenant must pay rent for the full quarter and then argue for the return of the balance following a valid exercise of the break. Up to that point, it cannot be said with certainty that the lease would terminate on the break date, since it might be subject to other conditions which might not be satisfied. There is currently no authority to say that the tenant has a right to recover the overpaid portion following a valid exercise of a right to break and that may be the next case in the long line of break clause cases!
What happens when the break day is the quarter day itself? Ancient case law says that rent is due on the morning of the date on which it has to be paid but is not in arrears until midnight so where does that leave a tenant who has a break right on a quarter day which is conditional on rent payment? Must the whole quarter’s rent be paid or not? A case from 1961 suggests perhaps not, but it is untested in the modern context of a conditional break clause.
The moral for a tenant when taking a new lease is to make sure the break is unconditional or that the lease says the rent is apportioned up to the break date. For the tenant exercising a conditional break right the safe course of action is to play it safe and pay the whole of the quarter’s rent and claim the surplus back after the break.