High Court ruling highlights break clause risks for landlords and tenants

The dispute arose when International Baccalaureate Organisation (UK) Ltd attempted to invoke a break clause to terminate the lease of its premises on Cardiff Gate Business Park.

The tenant served notice to terminate the lease on 23 February 2026. The notice was to take effect from 23 February 2026, but under the terms of the original lease, the tenant’s right to invoke a break clause was conditional on there being no rent outstanding at the break date. While payment of rent was required quarterly in advance, insurance rent was payable on demand, and if any of these sums were outstanding at the termination date then the break notice would be void.

On 6 February, the tenant emailed the landlord to ask how much rent was due. The landlord’s agents, Knight Frank, responded and sent an invoice for an amount up to 23 February, which was then paid. 

However, the landlord, Sterling House, claimed that the notice did not result in effective termination because the tenant had only paid up to 23 February, creating a significant shortfall. The landlord nevertheless contended that the break was ineffective because the annual rent was payable quarterly in advance and the tenant had paid only the amount invoiced up to the break date, leaving approximately £45,000 of the relevant quarter's rent unpaid.

In an added complication, on 20 February – just three days before the break date – the landlord had attempted to serve a demand for insurance rent by email to the tenant’s Singapore address. At 3pm that same day, the landlord hand-delivered to the tenant’s UK registered office a demand for £2,300 payable in insurance rent. This invoice covered insurance rent for the period 1 December 2025 to 23 February 2026, which departed from the usual timeframe for such demands, which were typically issued in March or April each year.

Pierre Smith, a property litigation expert at Pinsent Masons, said the earlier annual rent invoice proved critical to the court's decision. "Having been asked by the tenant what sums needed to be paid before the break date, the landlord's agents provided an invoice for annual rent apportioned to 23 February. The court held that this amounted to a ‘clear representation’ as to the annual rent required to be paid and said that the landlord was estopped from subsequently contending that a further amount was required."

The insurance rent was dealt with separately. The court concluded that the demand had been made too late to afford the tenant a reasonable opportunity to make payment before the break date, particularly given the time zone difference with the tenant’s Singapore office. Notwithstanding this, the judge concluded that there was no indication that “any undue delay occurred” in terms of the tenant’s payment.

Historically, landlords in England and Wales are not generally obliged to alert tenants to outstanding sums which may affect compliance with a break condition, but this case highlights that where sums are demanded prior to the lease break the tenant should be afforded a “reasonable” opportunity to pay. Moreover, it clarifies that failure to pay where the tenant has not been afforded a reasonable period in which to make a payment will not invalidate the break. 

Property disputes expert Alicia Foo said the case also carries direct lessons on how real estate landlord, tenant and agents should attempt to navigate the strict compliance demands of break clause payment conditions. “Break clause compliance continues to be an area of acute commercial risk and a failed break can cost a tenant years of unwanted lease liability, or cost a landlord years of guaranteed rental income,” she said. Foo added the ruling would be particularly relevant for real estate landlord, tenant and agents that regularly grapple with payment of rent or other sums conditions on lease breaks and the satisfaction of lease break conditions.

Smith said for tenants, the court’s ruling reinforces the importance of carrying out their own audit of sums due, but also proactively seeking an up-to-date statement of account and written confirmation from the landlord or its agent of the sums it contends must be paid before the break date. “All this type of correspondence, invoices and statements should be retained,” he said. “Where a landlord or its agent provides a clear statement of the amount required and the tenant reasonably relies on that representation, the correspondence may prove significant if the effectiveness of the break is subsequently disputed.”

Foo and Smith recommended that tenants should also check carefully whether sums such as insurance rent are payable automatically, or only following a demand. “Where payment is conditional upon a demand, particular attention should be paid to whether a valid demand has been made and whether the tenant has been afforded a reasonable opportunity to make payment before the break date,” said Smith.

For landlords and their agents, Smith said the High Court’s decision serves as a reminder “to review their break clause management procedures, to take great care when responding to tenants’ requests, and to afford them a reasonable time to pay any outstanding sums.”