Having written several articles warning tenants to comply strictly with lease break conditions, I was pleased to see a recent case adopt a common-sense approach, allowing a tenant some leeway despite its failure to comply strictly.
Break clauses and rent payments: a recent Court decision
Sterling House Ltd -v- International Baccalaureate Organisation (UK) Ltd [2026] EWHC 2680(BP) was decided last month and concerned the validity of the exercise of a break right by a tenant. International Baccalaureate Organisation (UK) Ltd (“IBO”), the tenant, served notice to terminate the lease in accordance with a break clause in the lease. The lease required all payments due by the tenant to be up to date as at the break date. What transpired is that the tenant had paid the rent only up to the break date, being 23 February 2026. The rent was payable quarterly and therefore the rent ought to have been paid until 24 March 2026. The tenant had in fact paid an invoice issued by the landlord which demanded the rent only until the break date, 23 February 2026. The tenant was technically in breach of the break clause. The Court found that the landlord was estopped from relying on the terms of the lease as a result of having demanded the rent only until the break date, rather than until the end of the quarter. The landlord was therefore not entitled to rely on the terms of the lease and the payment of the demand issued by the landlord was found to be sufficient compliance with the condition for valid exercise of the break right.
The insurance rent payable in terms of the lease, as is usually the case, was payable on demand. That demand was only made on 20 February 2026. The insurance rent was only paid on 24 February, the day after the break date. The Court found that the attempts to demand the insurance rent on 20 February did not afford the tenant a reasonable time to make the payment prior to expiry of the lease on the break date. The court found that even though the tenant had made the payment the day after the break date, that was reasonable in the circumstances and the tenant should not be regarded as having failed to comply with the terms of the lease.
Why did the Court allow the tenant to break?
This case is interesting because there have been a number of cases which have confirmed that strict compliance with any absolute condition specified in a break clause is necessary. An example given in a 1997 case noted that if the break clause requires the break notice to be served on blue paper, then that is what is required. Service on pink paper will not comply with the condition of the break clause.
I would say that the tenant’s employee dealing with the lease termination made every effort to ensure that the tenant had complied with the terms of the break clause and to interact with the landlord to ensure compliance. The landlord, having issued an invoice for rent only until the break date, rather than the end of the quarter, was bound by that. If it had remained silent, then it is likely that the tenant would have been required to pay the rent for the full quarter.
What does this mean for tenants?
Whilst the tenant was saved in this case, this is often not the outcome and tenants need to remain vigilant to ensure compliance with the conditions of any break clause in a lease.
If you are considering exercising a break clause or need advice on your lease obligations, contact Greg Humphreys or a member of our Real Estate team.