Break Clause Reminder for Landlords and Tenants - Exercise Caution!

In most cases, the Court has taken a strict view in respect of the interpretation of break rights. This can be particularly problematic for tenants, who may have failed to comply with a minor condition or have used an irregular notice procedure.

Failure to adequately serve written notice or to comply with all of the conditions in a break clause can lead to the break being invalid and the lease continuing until the expiry of the contractual term or the next break date.

Because of the severe consequences, tenants have had to adopt a cautious approach to break clauses and their conditions

A Recent Case Regarding Whether a Tenant Had Met the Conditions of Its Break Clause

In Capitol Park Leeds Plc v Global Radio Services Limited [2021] EWCA Civ 995, the tenant, as a condition of its break clause, was required to yield up the property to the landlord with vacant possession but prior to the break date had removed a number of landlord fixtures from the property. The landlord argued that in doing so the tenant had failed to yield up the property with vacant possession.

The Court however decided that even though the tenant was in breach of its repairing covenant by removing the landlord's fixtures, the break clause did not make the physical state of the property a condition of the break. The requirement was to provide vacant possession and as the tenant gave up the property free of people, chattels and interests, the condition was satisfied.

Even though the landlord could seek compensation for the breach of covenant, it could not challenge the degree of vacant possession so as to render the break ineffective.

The Practical Implications of the Decision

This decision reinforced the importance of ensuring that break clauses are sufficiently clear and precise, leaving no room for ambiguity. If a landlord wants to ensure that a tenant cannot exercise its break clause without putting the property into a specific state of repair, the clause must say so.

Parties should also ensure that the notice provisions are clear so the tenant knows exactly what will constitute a valid form of service of a break notice.

Lease Code

It is worth noting that RICS Code for Leasing Premises 1st edition states that "Unless the parties have agreed stricter conditions in the heads of terms, a tenant’s break should be conditional only on the tenant paying all basic rent payable on any date before the break date, giving up occupation and leaving no subtenants or other occupiers". There should therefore be good reason if a landlord and tenant are to depart from these break conditions.

For any further advise regarding the terms of a break clause please contact Steven Faragher in our Commercial Property team on 020 7665 0906, or complete the form below.