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Fully understanding break clauses in commercial leases

By Sara McGaughey, solicitor, Commercial Property Department at Worthingtons

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.

  • Sara McGaughey is a solicitor in Worthingtons commercial property department and advises clients on landlord and tenant matters

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