Fully un­der­stand­ing break clauses in leases

Belfast Telegraph - Business Telegraph - - Platform - By Sara Mc­gaughey So­lic­i­tor, Com­mer­cial Prop­erty De­part­ment for Wor­thing­tons Sara Mc­gaughey is a so­lic­i­tor in Wor­thing­tons com­mer­cial prop­erty de­part­ment and advises clients on land­lord and ten­ant mat­ters

Break clauses in com­mer­cial leases are sig­nif­i­cant as they give one or both par­ties a frame­work by which to exit the lease. It is there­fore im­por­tant to note any con­di­tions to be met be­fore the break can be con­sid­ered to have been ex­er­cised.

In the re­cent case, River­side Park Lim­ited v NHS Prop­erty Ser­vices Lim­ited (2016) EWHC 1313 the High Court in Eng­land & Wales ruled that the ten­ant’s fail­ure to re­move de­mount­able par­ti­tion­ing, win­dow blinds and kitchen units within an of­fice space meant that va­cant pos­ses­sion as a con­di­tion of the ten­ant’s break clause was not pro­vided and the break had not been ef­fec­tively ex­er­cised.

The lease, which had been granted to the ten­ant some five years prior to the ten­ant seek­ing to ex­er­cise the break clause, al­lowed the ten­ant to ter­mi­nate the lease pro­vided that it gave “va­cant pos­ses­sion of the premises to the land­lord on or be­fore (the break date)”.

The court found that de­mount­able par­ti­tion­ing, kitchen units and win­dow blinds be­ing chat­tels and not fix­tures which were not pre­sent upon the grant­ing of the lease were some­thing which the ten­ant was obliged to re­move in or­der to de­liver up va­cant pos­ses­sion.

In his rul­ing Judge Saffman found: The land­lord does not have to prove that the premises can­not be let to any­body else to es­tab­lish that the fail­ure of the ten­ant to pro­vide va­cant pos­ses­sion had com­pro­mised the land­lord’s en­joy­ment of the premises;

The land­lord’s en­joy­ment of the premises “en­com­passes hav­ing it in a con­di­tion in which it feels that it is a more at­trac­tive propo­si­tion to prospec­tive lessees”.

A land­lord seek­ing to challenge the ex­er­cise of a break clause within a lease will be re­minded that they should give thought to the ten­ant’s al­ter­ations and ad­di­tions to the prop­erty when de­cid­ing whether or not the ten­ant can en­force the break clause.

The de­ci­sion in this case will alert ten­ants to the fact that they must be aware of any con­di­tion­al­ity of a break clause they are seek­ing to ex­er­cise and that it is not just as sim­ple as serv­ing the req­ui­site no­tice within the stip­u­lated time frame.

The de­ci­sion in this case high­lights the fact that it is ben­e­fi­cial for both land­lords and ten­ants that a pho­to­graphic sched­ule of con­di­tion is car­ried out be­fore the lease is en­tered into in or­der to ev­i­dence the phys­i­cal state and con­di­tion of the prop­erty.

A break clause in a com­mer­cial lease gives one or both par­ties a frame­work by which to exit the lease

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