PCE Investors Limited v Cancer Research UK

 

The Message

Silence re break clauses can be golden.

The Case

In yet another break notice case, the Court has considered whether a landlord owes any duty to assist a tenant to exercise the break correctly In December 2005, office premises on the 4th Floor of Charles House in Lower Regent Street, London, were let from 12 October 2005 until 27 September 2014 at a yearly rent of £190,000. There was a right to terminate the Lease on 11 October 2010, being the 5th anniversary of the term, subject to giving not less than 6 months notice and giving vacant possession and paying all rents up to the Break Date.

The tenant, PCE Investors, served the break notice on the landlord, Cancer Research, on 25 September 2009 so the landlord knew well in advance that the tenant was intending to vacate.

The landlord’s agents sent a demand to the tenant on 21 September 2010 for the whole of the quarter’s rent for the period from 29 September 2010 to 24 December 2010, being £55, 812.50. The tenant responded on 24 September 2010 stating it had arranged payment of £8,563.01 to cover the period from 29 September to the Break Date of 11 October 2010 and the tenant sought confirmation that this was the correct basis for calculating the liability for this period.

On 30 September 2010 the tenant wrote again seeking confirmation it had correctly calculated the sum due but it again received no response and it was only after the break Date had passed, and it was too late to correct the position, that the landlord’s solicitors wrote to the tenant to state that the whole quarter’s rent had to be paid for the break notice to be effective.

Facing the prospect of paying about another £750,000 in rent, plus service charges and other outgoings, the tenant argued that the break notice was effective as either payment up to the Break Date was all that was required or the landlord had represented by its conduct that this would suffice.

The Court first reviewed the case authorities and held that, absent express provision to the contrary. it was clear that rent payable in advance did not fall to be apportioned and, as it was not certain that any conditional right to break would be effective until all conditions had been met by the Break Date, that a whole quarter’s rent did have to be paid up front even if the lease was to terminate earlier than the end of the quarter. The Judge expressed the view that this not only accorded with the wording of the lease in this case but made business sense and avoided uncertainty.

Accordingly, the tenant had to rely on its fallback argument that the landlord was prevented from relying on its failure to pay all the rent as it had accepted the part payment made and had said nothing about any balance being payable. It argued that the landlord knew the tenant was preceding under a misapprehension that the rent could be apportioned and owed it a duty to act honestly and reasonably by responding to its correspondence of 24 and 30 September 2010 with confirmation it needed to pay the whole quarter’s rent.

The Judge highlighted a number of practical difficulties involved if a landlord were to owe the duty as claimed and held there was no general duty to act in good faith or to point out an error by another party. Whilst a landlord could waive a defect in a break notice by making some representation which the tenant relied on to is detriment, by doing nothing a landlord could not be held to have misled a tenant in any way. As the Courts have previously made clear, t he benefit of remaining silent is that it gives no hostages to fortune.

On the facts of this case, the Judge thought the landlord had, in fact, made it perfectly clear by way of the rent demand that the whole quarter’s rent was due. Not having received the confirmation it sought from the landlord’s agents, the tenant should have paid the whole quarter’s rent if it wanted to be sure the break would be effective. It chose to take the risk involved in only making payment up to the Break Date and the landlord had not misled the tenant into believing there was no such risk.

It was not clear whether the tenant had received legal advice as to the amount of rent payable but this case illustrates how essential legal advice is in relation to exercising a break and how the right to break should not be made conditional to begin with given the severe consequences that can flow from any failure to meet any condition.