Q&A Thinking about downsizing your business premises be aware of your lease break clause

April 12, 2012

This article was written for and first featured in Cabinet Maker.

Q. My business has downsized recently and so I decided to break the lease of my shop premises and to find somewhere cheaper and smaller.

I knew about the conditions of the break clause set out in my lease and so was very careful to give notice to my landlord 6 months in advance vacate the shop the day before the break date and to send my landlord a cheque for the rent I owed him, along with the keys. The landlord has refused to accept that the lease has been terminated and says that I am still liable for the rent and bound by the lease as I have not validly exercised the break clause. Apparently there are some outstanding interest payments on rent I paid late in the past, although he never sent me a demand for them. He also says that the rent cheque is insufficient as it hadn’t cleared in time, despite the fact that I have nearly always paid my rent by cheque. Can he do this?

A. Break conditions have caught out many a tenant seeking to terminate its lease before its contractual end and strict compliance with the relevant wording of each individual lease is essential to avoid potentially disastrous liabilities.

The precise terms of your lease is key to answering your question but unfortunately it sounds as though you may have fallen victim to the detail of your break clause and your landlord may have valid, albeit devastating, reason to refuse to accept that the lease has been terminated.

The interest payments which the landlord claims you owe are one of the biggest traps for tenants when ticking off the conditions for a break as frequently a break clause will not specify that only sums that have been “actually demanded” by the landlord must be paid by the break date. In the absence of those words any sum owed, whether demanded or known to the tenant or not, would have to have been paid for the break to be effective. Provided that your lease does not contain an obligation for the landlord to formally demand interest payments from you then it is very likely they should have been paid in full by the break date. The Judge in a recent High Court case with very similar facts to those you have described decided that the terms of the break clause had not been met in full and so the tenant was bound by its lease for the remainder of the contractual term.

Turning to the landlord’s second objection of you having paid by cheque, the same High Court case is more positive on the basis that you say that you nearly always paid by cheque. If it can be shown that there was a ‘course of dealings’ between you and the landlord which resulted in an implied agreement between you that rent payments by cheque were acceptable then your landlord would not be able to argue at this point that a cheque was insufficient. A Court would consider your previous practice and decide whether the requirement for cleared funds to be with the landlord on the break date was necessary.

Unfortunately your situation highlights the importance of careful and rigorous negotiation of break clauses to avoid tenants being caught out by landlords later down the line and it is recommended to seek legal advice on the terms and conditions of a lease before signing up. Ideally break clauses should be unconditional but if a landlord resists then it is preferable to build in as much protection as possible against these and similar traps for the unwary tenant. As soon as a decision has been taken to exercise a break clause, legal advice should also be taken to ensure that there is meticulous compliance with any conditions so as to avoid any nasty surprises.


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