Commercial Property Disputes: Break clauses, push payment fraud and a costly lesson for commercial tenants

What happens when a tenant makes a payment to its landlord, but fraudsters divert the money to their own account?

A recent High Court decision provides a stark reminder that strict compliance with a commercial lease break clause – and getting the legal case right from the outset – can be worth millions.

In RR UK (South) Ltd v Firstsource Solutions UK Ltd (2026), the High Court considered whether a commercial tenant had successfully exercised a break clause after a payment of more than £95,000 intended for the landlord was diverted to a fraudster following a push payment fraud.

The tenant argued that, despite the payment being diverted, it should nevertheless be treated as having made a valid payment to the landlord. However, the tenant had not properly pleaded the positive legal basis on which it sought to rely, nor had that issue been included in the court-approved list of issues.

By the time the tenant sought to introduce the argument, the case was being managed under the Shorter Trials Scheme and the court considered the application to amend the issues to be too late.

The result was potentially devastating for the tenant: the break notice was ineffective and the lease continued, exposing Firstsource to substantial continuing rental liabilities. The case is a powerful reminder that, in commercial property disputes, procedural and contractual precision can have consequences worth millions of pounds.

What happened in RR UK (South) Ltd v Firstsource Solutions UK Ltd?

Firstsource Solutions UK Ltd was the tenant of commercial premises under a lease running until 1 November 2028. The lease contained a break clause allowing the tenant to terminate early, but only if specified conditions were satisfied.

One of those conditions required the tenant to have paid all sums due under the lease by the break date.

This included service charges of £95,111.40. It made the payment, but the landlord's managing agent had been the victim of a cyber fraud. Payment instructions received by the tenant had been altered, with the result that the £95,111.40 was paid into a fraudster's bank account rather than to the landlord.

Firstsource subsequently sought to exercise the break clause, with the break date being 16 December 2024.

The critical question was whether the diverted payment could nevertheless count as a valid payment to the landlord.

Why did the tenant lose in this commercial break clause case?

The crucial point is that the High Court did not decide that a payment diverted by fraud can never satisfy a break clause.

Instead, the issue before the court was whether Firstsource should be permitted to advance a positive legal case that its payment to the fraudster was nevertheless effective in law.

That case included an argument based on the apparent authority or agency of the landlord's managing agent. The difficulty was procedural.

The parties had agreed, and the court had approved, a list of issues identifying the matters to be determined at trial. Firstsource had not pleaded the relevant positive legal basis for treating the payment as effective and had not applied to amend its statement of case.

By the time Firstsource sought to revise the approved list of issues, the case had progressed significantly under the Shorter Trials Scheme. Disclosure and witness evidence had been prepared by reference to the issues already identified.

The court concluded that allowing the new case to be introduced at that stage would prejudice the landlord and undermine the efficient management of the litigation. The application was therefore refused.

The practical consequence was that the tenant could not rely on the proposed legal argument to establish that the £95,111.40 payment satisfied the break condition. As the payment had not reached the landlord and the relevant sums therefore remained unpaid, the break was ineffective and the lease continued.

What is the real lesson behind this break clause case?

In short, a break clause is only as good as its compliance.

Break clauses are common in commercial leases and can provide valuable flexibility for landlords and tenants.

For a tenant, a break clause can provide an important opportunity to exit a lease before the contractual expiry date and avoid potentially substantial future rent and other liabilities.

However, break clauses frequently contain strict conditions which should be complied with including:

• Payment of all rent and other sums due.

• Compliance with covenants.
• Giving the correct form of notice.
• Serving the notice on the correct party.
• Complying with the relevant notice requirements.
• Serving it at the correct address and by the prescribed method and giving the required amount of notice.

The courts have repeatedly emphasised the importance of complying with the contractual requirements of a break clause. A failure to satisfy a condition can mean that the break is ineffective, leaving the tenant bound by the lease.

This case illustrates just how significant the financial consequences can be.

Why does push payment fraud add a new layer of risk for commercial landlords and tenants?

This case also raises an increasingly important issue: what happens when a genuine contractual payment is intercepted by fraud?

Business email compromise and push payment fraud are increasingly sophisticated. Fraudsters may intercept communications between landlords, tenants, managing agents, solicitors, property managers and other professional advisers and provide apparently genuine alternative bank details.

The Firstsource decision does not establish a general rule that a payment diverted by fraud will always be treated as non-payment. The court did not determine the substantive merits of the tenant's proposed apparent-authority argument because the tenant was not permitted to introduce it at that stage of the proceedings.

That question may therefore arise again in a future case.

For businesses making significant property payments, however, the practical lesson is immediate: payment instructions should be independently verified before substantial sums are transferred, particularly where bank details have changed or new payment instructions are received by email.

Why does early legal advice matter in break clause cases?

The case also demonstrates a broader litigation lesson.

A party's legal case must be identified and pleaded carefully at an early stage. It is not always possible to introduce a new legal argument later simply because the underlying facts are already known.

This is particularly important in cases subject to streamlined or expedited procedures, where the court expects the parties to identify the real issues early and conduct litigation proportionately.

For commercial property disputes, this means that parties should consider the legal and procedural consequences of a dispute before taking a step that may be difficult or impossible to reverse.

For tenants considering exercising a break clause, that includes obtaining advice well before the break date and conducting a detailed review of the lease, the break conditions, sums due, notice requirements and method of service.

For landlords, it includes understanding whether a purported break has been validly exercised and whether any failure to comply with the contractual conditions gives rise to a right to challenge the break.

How Wards Solicitors can help:

Break clauses and commercial lease disputes can involve significant financial exposure, particularly where a failed break could leave a tenant liable for years of additional rent.

If you are considering exercising a break clause, challenging a break notice or facing a dispute concerning a commercial lease, obtaining advice at an early stage can help protect your position and avoid costly mistakes.

Wards Solicitors wins high praise in the 2026 edition of the independent Legal 500 guide of outstanding legal professionals for its exceptional professional service standards and high levels of technical expertise.

Our Commercial Property Disputes Team is experienced in this area of the law with specialist Richard Darbinian advising landlords and tenants on disputes arising from commercial leases, including:

• Break notices and break conditions.
• Disputed rent and service charge payments.
• Lease termination disputes.
• Contractual interpretation.
• Landlord and tenant disputes.
• Property-related fraud and payment disputes.
• Commercial litigation arising from lease breaches.

Call Richard: 0117 929 2811

Email Richard: Richard.Darbinian@wards.uk.com