Sterling House Ltd -v- International Baccalaureate Organisation (UK) Ltd [2026] EWHC 2680 (BP)

In October, an interesting judgment was handed down relating to break options. Eleanor Tordoff explores how the decision could arguably be the most important since the first instance decision in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd (the “M&S Case”) in 2015.

Facts of the case

Sterling House Ltd (the “Landlord”) let premises at Cardiff Gate Business Park to the International Baccalaureate Organisation (UK) Ltd (the “Tenant”) under a 2024 lease which contained a conditional break option. The conditions were that annual rent and insurance rent had to be paid. The Tenant served a break notice to terminate the lease with effect from 23 February 2026.

Ahead of the break date, the Tenant asked the Landlord’s agents for confirmation of the amounts due to comply with the break conditions. The Tenant received an invoice from the agent covering the period up to the break date, i.e. an apportioned amount of the annual rent. The Tenant paid the invoice they received which left c. £45k annual rent outstanding in respect of the balance of the quarter falling after the break date.

The Landlord tried to argue the break had failed due to that amount being outstanding. The Landlord also demanded c. £2,300 of insurance rent from the Tenant by hand delivering a demand to the Tenant’s office at 3pm on the Friday before the Monday break date. The demand sought payment by midnight on the Monday. The Landlord tried to hold the Tenant to the lease claiming it had not been validly terminated and therefore the lease continued until its contractual expiry.

Decision

The Landlord’s claim was dismissed and the Court held that the Landlord was prevented from relying on the shortfall to frustrate the break.

Annual Rent – Estoppel

• The M&S case confirms that clear wording is required to allow parties to depart from the position under a lease. However, in this case, the Court found that the Landlord’s invoice amounted to a clear representation of what the Landlord wanted to be paid before handover of the property on/before the break date.
• The Judge found that the Tenant had reasonably relied on the invoice, having specifically sought the invoice well before the break date to ensure all the necessary sums were paid and believing that payment of the invoice was all that was needed to comply with the break conditions.
• The Landlord was therefore estopped (i.e. it would have been unfair for the courts to allow a different outcome) from demanding the balance in an attempt to frustrate the break.

Insurance Rent – No Reasonable Time

• The Court found that the Landlord’s last-minute demand for insurance rent did not give the Tenant a reasonable opportunity to complete the mechanics of payment prior to the break date.
• The payment was then subsequently made by the Tenant within a reasonable period, but not prior to the break date. 

Practical Takeaways

Conditional break options are unforgiving. If the break is conditional upon payment of a sum, if any sum is outstanding at the break date, the break fails and the lease will continue. However, this decision is a welcome reminder that a landlord cannot exploit that strictness where either they or someone on behalf of them (here an agent) have told the tenant what to pay.

• Landlords and agents – Take care what is communicated and represented to departing tenants in terms of their liabilities leading up to a break date as it could result in a landlord being prevented from insisting on more rent from a tenant to try and invalidate the break notice.
  • An invoice or statement of what is due can become a representation that prevents a landlord later claiming a shortfall and trying to claim that a break notice is invalid, even where the lease strictly required more to be paid.
  • If a sum must be paid to comply with a break condition, demand it clearly and early as a tenant must be given a reasonable opportunity to pay any amount demanded.

• Tenants – Request a figure for all sums due well before the break date.
  • Keep a clear record of the request, the response and pay the amount due promptly using an appropriate payment method.
  • This case is a useful shield for tenants in circumstances where a conditional break option is challenged. However, it is expected that tenants’ focus will remain on avoiding these circumstances arising in the first place.

• Both Sides – The strict pay every penny rule for conditional breaks remains (as set out in the M&S case), but it is tempered where a landlord’s own conduct misleads the tenant or denies it a fair chance to pay.

For more information about break options in commercial leases, contact our Property Litigation team today.