Lawbite: Landlord's own invoice saves tenant's break

In a recent High Court decision, a landlord’s own rent invoice resulted in a tenant’s break option being successfully exercised despite the tenant not strictly complying with the break conditions.

In this decision, which applies in England and Wales, the court held that a landlord whose agent invoiced only part of the quarter’s rent to the tenant was estopped from relying on the unpaid balance of that quarter's rent to assert that the break had not been validly exercised. As a result, the tenant successfully terminated the lease.

Landlords, tenants, managing agents and their advisers will find the decision most relevant, as will anyone operating a break clause with payment conditions.

What happened?

International Baccalaureate Organisation (UK) Ltd (Tenant) served a break notice on Sterling House Ltd (Landlord), purporting to terminate its lease of premises in Cardiff Gate Business Park in February of this year.

Under the lease, rent was payable quarterly in advance, and the break was conditional on there being no annual rent or insurance rent outstanding as at the break date.

Ahead of the break date, the Tenant requested a rent invoice from the Landlord’s agent. This was provided but only demanded rent up to the break date, not for the full quarter in which the break date fell.

Although the Tenant paid the sum as invoiced, c.£45,000 of the full quarter's rent remained unpaid. In addition, the Landlord hand-delivered an insurance rent demand, at 3pm on the Friday before the break date, which remained unpaid as at the break date.

The decision

The court dismissed the Landlord’s claim that the break had failed for non-compliance with the break condition.

In the court's view, the invoice was a clear statement of what the Landlord wanted the Tenant to pay, and the Tenant had reasonably relied on it. Accordingly, the Landlord was estopped from relying on the unpaid balance to assert that the tenant had not terminated the lease (i.e. it was legally prevented from going back on its earlier position).

The court also rejected the landlord’s argument based on the outstanding insurance rent. It held that the estoppel extended to that sum; alternatively, the insurance rent demand failed to give the Tenant a reasonable opportunity to pay by the break date.

Takeaways

• landlords and their agents should take care when corresponding with, and issuing invoices to  tenants ahead of a break date, to ensure that they do not inadvertently waive the requirement to comply with any conditions and/or behave in a way that could create estoppel arguments in future.
• an agent’s invoicing error can bind the landlord and can remove the landlord’s opportunity to challenge the tenant’s break option after the break date
• landlords should ensure that sums payable on demand are demanded early and in accordance with the terms of the lease, rather than days before the break date, to minimise arguments around the validity of demands
• tenants should ask for written confirmation of every sum needed to satisfy the break conditions, although any such confirmation or invoice should be treated with caution and the tenant should continue to comply strictly with the break conditions to avoid lengthy and costly litigation