It’s worth paying more rather than less to secure a break

3 May, 2012

Where break clauses in leases are concerned you need to leave as little doubt as possible that they have been fulfilled. If you fail to satisfy them the consequences can be dramatic; in the recent case of PCE Investors Ltd v Cancer Research UK the tenant’s failure to fulfil the break conditions will mean that the lease continues for another four years and will cost the tenant £760,000 in additional rent.

In September 2009 the tenant (PCE Investors) served notice on the landlord (Cancer Research) to break the lease on 11 November 2010. One of the conditions of the break was that the tenant must have paid the rents reserved up to the termination date. The yearly rent was expressed to be payable in advance on the usual quarter days. The tenant was unsure whether it needed to pay the full quarter’s rent on 29 September 2010 or a proportioned down amount to reflect the fact that the termination date was 11 November 2010. On 21 September 2010 the landlord’s agents sent a demand for the full quarter’s rent. On 24 September 2010 the tenant sent an email to the landlord’s agents informing them that it was going to pay a proportioned amount for the period from 29 September to 12 October and asking the agents to confirm that ‘this is the correct basis for calculating the liability for the short period’. The landlord’s agents did not respond and the tenant subsequently tendered the reduced amount. The landlord subsequently refused to accept the break notice as valid.

Both parties applied for summary judgment under CPR 24 asking the court to confirm whether the break had been activated. The court concluded that it had not been. Peter Smith J was satisfied that on a true construction of the lease a full quarter’s rent had been due. He commented that the most important matter from a business point of view was certainty and none of the tenant’s arguments satisfied him that the tenant had fulfilled the obligation to pay the rent reserved up to the termination date by paying the proportioned amount. He was also not persuaded that the landlord’s silence in response to the tenant’s question regarding the amount of rent estopped the landlord from claiming the break was invalid: “silence is golden for where there is no obligation to speak silence gives no hostages to fortune”.

The case demonstrates that where there is any uncertainty over whether a proportioned rent can be paid by a tenant to satisfy a break clause, the best policy is to pay the higher amount and then to request any overpayment back from the landlord once the break has taken effect.

PCE Investors Ltd v Cancer Research UK: