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Commercial Landlord and Tenant : Full Quarters Rent?

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A tenant’s opportunity to effectively operate a break clause can be thwarted by underpayment of rent.

Commercial leases often include break clauses where the operative date does not fall on a quarter day.  Increasingly tenants are looking to exercise break options.  Tenants will want to ensure they give proper notice and equally landlords will want to check that the tenant has correctly served the notice and paid all rent.

In the circumstances where a tenant wishes to effect a break in the lease does the tenant have to pay a full quarter’s rent or just the rent up to the date the break takes effect from?  Leases usually provide that the successful operation of a break clause is conditional upon the payment of all rent up to the break date.

A judgement in a recent case decided that the tenant must pay a full quarter’s rent unless the landlord agrees otherwise.

Consider the position.  A lease granted on 1 December with a break clause being on the 5th anniversary of that commencement date – ie 1 December.  Rent is payable on the usual quarter dates – 25 March, 24 June, 29 September and 25 December.  On 29 September the tenant will have to pay the full quarter’s rent through to 25 December.  The tenant cannot pay the rent from 29 September to 1 December.

If the tenant does not pay the full quarter’s rent then the landlord may be able to argue that the rent has not been paid in full, and thus all terms of the lease have not been complied with and so the break notice is invalid – that could have consider consequences for a tenant!

What if the tenant writes to the landlord or the landlord’s agent indicating that the rent was only payable from 29 September to 1 December and asking for the landlord or the agents to respond confirming that the tenant’s calculation was correct?  What if the tenant receives no reply?  The landlord will not be stopped in such circumstances from later claiming that the full amount of rent is due where it had served a rent demand for the full quarter’s rent and had not challenged the tenant’s assertion that only an apportioned sum is payable.

Each situation has to be determined on the proper construction of the relevant lease.  Each case will be decided on its own facts.

In the recent case the court placed considerable weight on the fact that the landlord had served a demand for a full quarter’s rent. 

If in doubt both tenants and landlords should take advice.  Need help contact: Annette Wood