To break or not to break: break clauses and conditionality
A landlord is not obliged to allow a tenant to surrender a commercial lease prior to the end of the contractual term. An option to break (i.e. the ability to end the lease early) incorporated within the lease is therefore a luxury many tenants simply cannot afford to lose.
Operation of the right to break will often be conditional on the tenant complying with certain requirements for example; the rents due under the lease being paid up to date, prior written notice of the intention to break being served on the landlord (often no less than six months prior to the break date in question) and the tenant returning the property to the landlord with vacant possession.
Any conditions attached to the right to break must be strictly performed and it is therefore essential when negotiating a lease that the break clause is not drafted in such a way that the tenant may face difficulty in complying with such conditions as this may hinder the chances of successfully exercising the option to break.
Historically, tenants have faced particular difficulty with complying with a condition to return the property to the landlord with "vacant possession". A requirement to return the property with vacant possession does not merely extend to the tenant leaving the property and passing the keys back to the landlord, instead this includes a requirement to remove all belongings, works carried out to the property and security staff. In Riverside Park Ltd v NHS Property Services Limited [2016] EWHC 1313 (Ch), the tenant had carried out fit out works during the lease term, including the installation of partitioning. The tenant chose to exercise the break and when the tenant moved out, it failed to remove the works, and the landlord subsequently argued that the tenant had not given vacant possession. The High Court held that the partitioning comprised chattels that substantially prevented or interfered with the right of possession, and the tenant had not given vacant possession. The tenant's exercise of the break failed.
It is common practice now for a break clause to include a condition for the tenant to "vacate the property and return it to the Landlord free from any occupier or third party right to occupation or possession". A landlord will have other remedies available under the lease if the property is not returned in the condition required by the lease and may pursue the tenant separately after the lease has terminated. The conditionality being drafted on this basis rather than a blanket requirement to return the property "with vacant possession" is designed to reduce the likelihood of a dispute arising upon the tenant seeking to exercise the option to break.
An option to break can be very valuable to a tenant, allowing the flexibility to vacate the property early whether this is due to expansion or perhaps a decrease in revenue. The ability to break allows the tenant to make the property fit to the ever changing needs of its business throughout the lease term. It is therefore vital to preserve the benefit of the break and ensure that the conditions attached to the break are able to be complied with.