UK: A Tough Break For Tenants

Last year we saw a number of cases where tenants failed to break their leases due to their leases containing conditional break clauses. In Canonical UK Ltd and TST Millbank LLC (2012) EWHC 3710 (Ch) the High Court considered this issue once again.

The Facts

The Claimant tenant, (“Canonical”), served a valid break notice on its landlord to terminate its lease of premises on the 27th floor of the Millbank Tower, London on 22 August 2012. The break clause allowed for termination of the lease upon satisfaction of various conditions, which were:

–– Payment of rent “up to and including” the break date

–– The tenant not being “materially in breach” of any of its covenants at the break date

–– Payment of a premium equivalent to one month’s rent

After service of the break notice the landlord invoiced Canonical for a quarter’s rent in advance plus VAT and a quarter’s service charge in advance plus VAT. Canonical paid the landlord the sums invoiced on 29 June 2012 (5 days after the quarter day) and on the credit advice referenced the specific invoice number.

Canonical did not pay the premium. Canonical vacated the premises on 22 August 2012 and sought a declaration that it had validly exercised the break. It argued that as the break date fell part way through a quarter only the rent up to 22 August 2012 was due “up to and including” the break date and that the balance of the payment it had made should be attributed to the premium.

The Proper Construction of the Break Clause

Canonical sought to argue that on a proper construction of the lease the words “yearly and proportionately for any part of the year” in the rent payment clause should be construed as meaning that a proportionate payment of rent only had to be paid up to the break date and not the full quarter as Canonical had demanded.

The landlord’s case was that on a proper construction of the lease a full quarter’s rent was due on 24 June as a condition of validly exercising the break and this was settled law.

Mr Justice Vos considered a number of authorities including the recent case of Quirkco Investments Ltd v Aspray Transport Ltd (2011) EWHC 3060 (Ch) (“Quirkco”) where it was held that a tenant was not entitled to recover the balance of a quarter’s rent that was referable to the period after the break date (see our report of this case in our Real Estate Bulletin from Summer 2012). The case of PCE Investors Ltd v Cancer Research UK [2012] 2 P&CR 5 (“PCE Investors”) was also considered. In that case Mr Justice Peter Smith had held that a full quarter’s rent was payable even when a break was due to operate in the middle of the quarter.

The Judge rejected Canonical’s argument. In accordance with Quirkco he found that the use of the words “yearly and proportionately for any part of the year” dealt with a tenant’s liability at the beginning and end of the term by effluxion of time. The rent clause required a quarter’s rent to be paid on the June quarter day and the break clause required rent to be paid in full. The break was conditional which meant that it was unknown as at the quarter day whether the lease would be terminated in accordance with the break.

Leases are to be construed strictly and business certainty is desirable for both parties. The break clause did not say, although it could have, that if a break notice is served, only a proportionate part of the rent payable for the quarter in which it expires is payable. It was up to the tenant to strictly comply with the conditions of the break clause if it wished to take advantage of that clause in accordance with its terms and, in this case, it had failed to do so.

If Canonical had succeeded in its argument it would have sought to say that the balance of the rent paid was attributable to the premium. The Judge found against the tenant on this point too as the payment was clearly attributed to the specific invoice so the landlord could not have known that it was intended to cover the premium.


This is the fourth in a string of recent cases regarding conditional breaks, which have found consistently against the tenant who faces a high threshold in order to validly break a lease in the current economic climate. The clear message to tenants wishing to break a lease is to take professional advice and pay all monies that are potentially due before the break date to be sure that the break operates.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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