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Case Update - Why Break Clauses Are Never Straightforward

on Friday, 13 January 2017.

Many leases contain break clauses and often these break clauses contain certain pre-conditions, which must be satisfied for the break to be validly exercised.

NHSPS as tenant, recently failed to comply with these conditions meaning their break clause was not effectively exercised.

Whilst each case is specific to its facts, we can learn useful lessons from the decision reached by the Court here.

The Facts

In the 2016 case of Riverside Park Ltd v NHS Property Services Ltd, NHS Property Services Ltd (NHSPS) was the tenant under a 10 year lease. NHSPS had the right to break the lease on the fifth anniversary of the commencement of the lease, provided that it:

  • served at least six months' notice of the intention to break
  • gave vacant possession of the premises on or before the break date

During the term of the lease, NHSPS had installed partition walls, kitchen units and an intruder alarm at the premises (the Works). Vacant possession is a technical legal term - NHSPS argued that vacant possession had been given because the Works now formed part of the premises, whereas the landlord's view was that the existence of the Works were separate from the premises and interfered with the landlord's right to immediately possess the premises.

The Court found that the Works were chattels and did not form part of the premises, and because NHSPS had not removed the Works, they had not given vacant possession. This meant that the pre-conditions for exercising the break had not been complied with and the lease had not been brought to an end. NHSPS were still on the hook!

What happens if the break clause is not validly exercised?

If the Court finds that there has been a defect in the exercise of a break, the lease will not end on the break date, instead it will continue until the end of the term of the lease (or until another break clause is correctly exercised if available).

For a tenant who has incorrectly exercised a break clause, this means that the tenant will remain tenant and liable for the tenant covenants under the lease, which will include payment of rent and all other liabilities (service charge/insurance/rates and utilities etc.) until the end of the term. A tenant may be able to negotiate a surrender (handing back of the lease) with the landlord however this may involve a payment of a large premium to the landlord. Alternatively the tenant can look to assign (sell) the lease or underlet the premises for the remainder of the term to reduce their financial exposure at the premises.

For a landlord who has incorrectly exercised a break clause, this could mean that their plans to have the property back to develop, sell or re-let are on hold until the end of the term of the lease unless they can agree a surrender with the tenant which may involve payment of a large premium to the tenant.

I Wish to Exercise a Break Clause in my Lease - what should I do?

Each case is different so the conditions will vary depending on the drafting of the lease. We always recommend that you obtain advice from a property lawyer such as ourselves at least three to six months before you are required to service notice to exercise the break clause. We can then ensure you correctly serve the break notice and subsequently manage your exit from the property so as to comply with any other conditions attached to the break clause.

My landlord/tenant has served a break notice on us, what do I do?

If the other party to the lease has served a break notice on you the first thing to do is to make sure you do not acknowledge the notice, instead give one of our property team a call. We can consider the notice and advise you as to whether the break notice has been properly served or not.

If the notice has not been correctly served, particularly where you do not want the break to be exercised, then we can advise you on how best to manage the situation.

If the notice has been correctly served, we can advise you on any other conditions that may need to be complied with.

How can I prevent this confusion arising in the first place?

It is very important to ensure that you fully understand your break clause and any conditions before you enter into a new lease or take an assignment of an existing lease. Our commercial property team are available to ensure that the clause is drafted so as to ensure that your position is protected, and that the requirements for a break clause are clear from the start of the lease.


For more information, please contact Gemma Pouncy in our Commerical Property team on 0117 314 5300.