A Guide To: Break ClausesAbdi Ebrahimi
The lease will indicate whether the break clause is in favour of the landlord, the tenant, or both.
Typically, a break clause is exercisable by a tenant either on a fixed date specified in the lease, at any time on or after a fixed date as specified in the lease or upon a certain event occurring.
Many break clauses also contain pre-conditions such as stating that there must be no rent arrears and that the property must be returned with vacant possession.
Although the above may appear to be relatively straight forward, there have been a couple of recent cases which help to demonstrate that care must be taken when drafting and understanding break clauses.
- In 2015 the High Court decision in BNP Paribas Securities Services Trust Company (Jersey) Limited V Marks & Spencer PLC confirmed that rent paid which related to a period beyond the break date did not need to be refunded to a tenant (in this case Marks & Spencer) because the lease did not contain an express provision requiring that to happen. The refund sought by Marks & Spencer, which the landlord was able to keep, was over £1.1m!
- In 2011 the Court of Appeal decision in Ibrend Estates BV v NYK Logistics held that vacant possession means that the property should be empty of people and that any buyer must be able to assume and enjoy immediate and exclusive possession, occupation and control of the property. In this case NYK had retained security at the property and carried out some repair work after the break date. The court held that vacant possession had not been given.
It is important that any break clause is carefully drafted to ensure that it reflects the intentions of both the landlord and tenant. If a party wishes to exercise a break option, they must ensure that any conditions are satisfied to provide for valid notice.
If you are a landlord or tenant and you wish to obtain advice in relation to the break clauses or any other lease terms, please contact our Commercial Property Team via our online contact form or by telephone on 01782 262031.