Tenants Beware: the ‘All Sums’ Stitch Up
Tenants who seek to operate a break clause in their lease should look out for two words before doing so: ‘All Sums.’
Often break clauses within leases may be conditional on a tenant having paid ‘all sums’ owing to the Landlord before exercising the break. This may seem fair – but think about the scope of this phrase.
On the surface, one might assume that as long as a tenant has paid all his or her rents before exercising the break, and complied with all other requirements for service, then the break notice would be valid.
But consider the following scenario:
Imagine that you are a tenant with a ten year lease with the right to break on its fifth anniversary. To exercise the break you must serve a break notice on the landlord at least six months’ prior to this break date. One month, you are 3 days late in paying your rent. Under the terms of your lease, you might technically be liable for interest on that payment – but it might be such an insignificant sum that the landlord may not choose to enforce it immediately.
Under the definition of ‘all sums’, however, this small interest payment would be deemed an amount still owing to the landlord. If the time came to serve a break notice and exercise your break, you would be required to ensure that this interest payment, as well as all other payments under the lease had been paid to the landlord before it could be validly effected. In this scenario, the break notice would not be valid because the conditions of the break had not been satisfied.
As a result, these two innocuous looking words could result in a tenant being tied into a lease for the remainder of the term. Imagine a small interest payment being at fault for costing you another 5 years’ worth of rent on premises you didn’t even want to operate from anymore!
So how can tenants ensure they don’t fall foul of this deceptively benign phrase?
Ideally, of course, the best possible scenario for tenants is for the break clause to be unconditional, as is the recommended practice in the Lease Code. But it can be difficult to get landlords to agree to this.
As ever, clarity is the key. If a landlord insists on a conditional break clause in your lease, make sure the clause specifies exactly what sums are required in order to satisfy it. That way, you’ll never knowingly fall foul of this potentially catastrophic clause.