Lease Break Error Proves Costly for Tenant

July 18, 2013

Lease Break Error Proves Costly for Tenant

When a tenant’s lease has a break clause, normally all rent due must be paid in full before the break clause can be activated – even if the rent paid runs beyond the break date.

If a tenant decides to pay only the rent ‘due’ until the break date, this may render the election to break the lease invalid.

In a recent case, a tenant sought to break a lease which specified (among other things) that for a break notice to be valid, all the rents payable under the lease must be paid up to the date of the break and that the tenant must also pay to the landlord a sum equivalent to one month’s rent in addition as a ‘reverse premium’. This sum had to be paid ‘on or before the break date’.

In June 2012, the landlord issued the rent demand for the quarter commencing 24 June, citing the landlord’s invoice number for the rent demand. In February 2012, the tenant had issued a notice terminating the lease on 22 August 2012. The tenant paid the rent demanded, but did not pay a further month’s rent.

The tenant argued that the sum paid had met the lease terms as it was sufficient to cover the rent which would be due plus the one month’s reverse premium.

The landlord argued that the tenant had breached the terms of the lease because it had not paid the additional month’s rent when it issued the notice to break the lease. Furthermore, since the tenant had not mentioned again its intention to break the lease when the invoice was paid, the landlord had no way of knowing that part of the payment was meant to cover the reverse premium. Accordingly, the landlord argued that the notice to break the lease was invalid.

The court accepted the landlord’s argument. An appeal is thought likely, however.