Break clauses: a reminder for both landlords and tenants

When advising clients on break clauses, the focus is often on the risks facing tenants. A missed payment or failure to comply with a break condition can be enough to invalidate a break notice. The recent High Court decision in Sterling House Ltd v International Baccalaureate Organisation (UK) Ltd, however, is a reminder that break clause disputes are not just a tenant risk. Landlords (and their agents) must also take care in the information they provide as a break date approaches.

The facts

Before the break date, the tenant did exactly what many prudent tenants would do. It contacted the landlord’s managing agent and asked for confirmation of the sums that needed to be paid to satisfy the break conditions. The agents issued an invoice, and the tenant paid it in full.

So far, so sensible.

However, after the break date had passed, the landlord argued that additional rent and insurance rent remained outstanding, and that as a result, the break notice had not been validly exercised.

The court’s view

The High Court was not persuaded.

It held that the invoice issued by the landlord’s agents amounted to a clear representation of the sums that the tenant needed to pay to satisfy the break conditions. The tenant had relied on that information and paid the amount requested, and was entitled to treat its obligations as satisfied.

The landlord was therefore estopped from arguing later that further sums were due and that the break was ineffective.
The timing of the insurance rent demand, which was issued shortly before the break date, provided additional support for the tenant’s position. In the circumstances, the tenant had not been given a reasonable opportunity to make payment before the deadline and had acted promptly once it became aware of the demand.

The result? The landlord’s challenge failed and the break notice was held to be effective.

Practical takeaways

This case is a timely reminder that, as a break date approaches, both sides need to get this right.

For tenants: obtaining written confirmation of sums due before a break date can provide valuable protection if a dispute later arises.

For landlords and managing agents: rent demands provided to tenants must be accurate and carefully checked. A seemingly routine invoice may be treated by the court as a representation on which a tenant is entitled to rely.

The bottom line

Break clauses continue to require careful handling. Tenants should continue to proceed on the basis that strict compliance is required, whilst landlords and their agents should ensure any information provided regarding sums due is accurate.

This article was co-written by Hannah Sheen, trainee solicitor in the real estate litigation team.