Break clauses strike again- PCE Investors Ltd v Cancer Research

I have written frequently about the perils of break clauses in the commercial Lease for the Tenant. The odds are firmly stacked against the Tenant. Most Leases require pre-conditions that have to be satisfied before the Lease can be validly broken. These terms will be construed by Landlords strictly. After all, the Landlord does not want to have to look for another Tenant and be left out of pocket. This posts concerns the case of PCE Investors Ltd v Cancer Research (2012).

PCE Investors Ltd (Tenant) held an underlease of commercial premises in Regent Street, London from Cancer Research (Landlord). The annual rent was £190,000 payable on the usual quarterly days. The break clause was dependent on the Tenant having 'paid the rents reserved and demanded by this Lease up to the termination date.' The Tenant twice sought confirmation from the Landlord that an apportioned amount was the correct amount of rent. On both occassions, the Landlord did not respond. Once the break date had passed, the Landlord claimed that the Tenant's break notice was invalid. The Tenant brought proceedings against the Landlord.

The court found in the Landlords favour. The Tenant was bound to pay the full amount, and not an apportioned amount, on the quarterly days. The Landlord was not obliged to inform the Tenant that an apportioned amount was unacceptable. Allowing the Tenant to pay an apportioned rent would be commercially unsustainable and would create uncertainty. The Tenant's attempt to break the Lease failed and they were liable for the annual rent bill of £190,000 until 27th September 2014- no small sum.

So a failure to comply with a break clause will leave a Tenant with a broken bank account and stuck in a property he does not want. The above case (and indeed all the recent break clause cases) makes the following clear:

• Landlords (and courts) will interpret break clauses to the letter. Rent is payable in full at the end of each quarter day. Any apportionments will not be acceptable unless there is express wording to the contrary in the Lease. Suffice it to say that Landlords and Tenants should agree the situation, regarding apportionments, at the outset of the Lease.
• The Landlord is not obliged to correct and inform the Tenant if the Tenant mistakenly believes that an apportioned amount is acceptable.
• A Tenant must leave the property immediately, and empty, when a break notice is given in order to comply with the need for vacant possession. S/he cannot assume that the Landlord will have waived that condition so the Tenant can carry out repairs to the premises. This will avoid an Ibrend Estates situation (see my previous case note on this).
• A Tenant should keep records of all payments that they make under the Lease to stop the Landlord claiming default interest on any late payments under the Lease. This will avoid an Avocet situation (see my previous case note on this).

In conclusion, all the cases show that break clauses are heavily weighed in the Landlord's favour. Break clauses will be interpreted very strictly. The Tenant will be allowed precious little leeway. Following the above, will save the Tenant money.

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