Break Clauses: Devil In The Detail

Two recent cases have again highlighted the inherent dangers to tenants in exercising conditional break rights. In one case the tenant was lucky – failure to pay the insurance rent did not put it in breach of the lease because of the specific wording. In the other it was held that the tenant was in breach because it had paid rent late some years before and had not paid the interest that was due as a result (and had not been demanded).

The first decision involved a break clause that was conditional on there being no arrears of rent and no other outstanding breaches of covenant at the expiry of the notice to break. The break date was 18 December 2010. In November 2010 the landlord sent an invoice for the insurance premium for the premises due for the next year. The tenant was required to pay such sums as the landlord may "from time to time expend in insuring".

The tenant objected as the insurance premium covered the period after it would have vacated and refused to pay. The landlord's cheque to the insurance broker went astray and the broker paid the premium on behalf of the landlord prior to the break date.

The court held that the landlord could not demand payment for the insurance charge in respect of sums that it had not yet actually expended. As a result, the tenant was not in breach of the lease as at the date of expiry of the break notice.

The second case is a harsh warning to tenants to be extra careful about complying with all the terms of a conditional break clause. The lease gave the tenant the right to break on a specified date. The break would be of no effect if any payment due under the lease had not been paid, amongst other conditions. Throughout the lease the tenant had paid rent by cheque and had often paid slightly late. The day before the break date, the tenant delivered a cheque to the landlord for the payment of six month's rent due under the break clause and stated that it had paid all outstanding charges and was not aware of any breach.

The landlord argued that the break payment had not been paid because cleared funds had not been provided. It also maintained that there were outstanding charges as the tenant had not paid interest that was due under the lease for payments of rent that had been paid late in the past, even though no demand had been made for the payment of interest.

The court held that the landlord had consistently agreed to accept cheques as payment for the rent and that therefore there was an implied...