Break options
in leases

The High Court* has recently decided that, on the true construction of a lease, the tenant’s break option was not conditional on compliance with its reinstatement obligations, which were drafted in an uncertain way.

A break clause is often included in a fixed term Lease allowing either the landlord or the tenant (or both) to end the lease early.  However any conditions attached to the right to break must be strictly complied with.  In this case the tenant asked the Court to determine and advance its obligations under the break clause in a lease of office premises in Central London which it had already vacated.  Successful exercise of the break option would save the tenant around £20 million so it was important for it to know in advance what it needed to do. 

The break option (clause 23.1) stated that it was:-

“Subject to the Tenant being able to yield up the Premises with vacant possession as provided in Clause 23.2”. 

Clause 23.2 read:-

“On expiration of such Notice, the Term shall cease and determine (and the Tenant shall yield up the Premises in accordance with clause 11 and with full vacant possession”.

Clause 11 of the lease contained the tenant’s reinstatement obligations which were basically to remove any alterations or additions and return the premises to their original layout. 

It was not in dispute that the break clause was conditional on the tenant yielding up the premises with vacant possession on the break date.  The parties also agreed that the tenant was contractually obliged to comply with clause 11 on expiry or termination of the lease.  However, the landlord argued that on the wording the successful operation of the break clause was also conditional upon full compliance with clause 11. 

The Court found in the tenant’s favour.  It concluded that, although both parties’ interpretations of the clause were possible, the “natural and ordinary meaning” of clause 23.1 was to impose a single condition, namely to yield up with vacant possession.  If the landlord had wished to provide for strict compliance with clause 11 as a condition of the break, it should have stated this very clearly in the lease.

Whilst this decision turns on the construction of the particular wording in question, tenants will no doubt welcome the sensible approach by the Court.  The decision is also a useful reminder to both parties to ensure that any break conditions are clearly drafted, leaving no doubt as to what needs to be done for a break notice to be effective.  This certainty will benefit both parties.

If you need any advice in relation to break notices please feel free to contact Debbie Whiteley at dfw@nexussolicitors.co.uk or 0161 819 4920.

 

* In Goldman Sachs International –v- Procession House Trustee 1 Limited and Procession House Trustee 2 Limited [2018] EWHC 1523

Any and all information on this website is general information and is not legal or other advice. Nexus Solicitors Limited is not responsible for any loss which may arise from relying on the information on this site.

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