Back
Get in Touch Menu

Break clauses: A case for careful drafting

28 March 2023

The Capitol Park Leeds Plc v Global Radio Services Ltd case has further highlighted the importance of the careful drafting of break options in commercial leases.

The break clause in this case was conditional on the tenant giving “vacant possession of the premises to the landlord on the relevant tenant’s break date.” The definition of ‘premises’ in the lease was arguably wide as it included fixtures and fittings “whenever fixed.”

Shortly after the grant of the lease, the tenant carried out significant work to strip out numerous fixtures and fittings at the property that included ceiling tiles, lighting, radiators and electrical equipment.

In anticipation of the break date, the tenant began to reinstate the premises but subsequently stopped in the hope that a commercial deal would be agreed with the landlord to avoid needing to complete the works. A deal, however, was never struck and the premises were returned to the landlord as an empty shell.

The High Court held that the property was “dysfunctional and unoccupiable,” rendering the exercise of the tenant’s break option invalid.

The Court of Appeal later overturned this decision on the basis that the pre-condition requiring the tenant to give vacant possession was not concerned with the physical condition of the premises, but rather returning them free from people, chattels and interests. Given that the definition of ‘premises’ in the lease was also not fixed (as it referred to them as they were from time to time), they could not be alleged to be too bare when handed back to the landlord.

Whilst the premises might not have been fit for use at the break date, the exercise of the break was not prevented as it was not conditional on the tenant fulfilling its repairing obligations under the lease or – more generally – observing and performing the covenants in the lease. The court ruled that the landlord had other remedies in respect of the tenant’s breach of repair covenant so did not need to be assisted by an ineffective break.

The case therefore highlights that the requirement for vacant possession in a break clause does not relate to the condition of the property and, although the requirement for vacant possession can be failed by a tenant leaving too much at a property, leaving too little does not necessarily prevent the exercise of a break right.

Break clauses in leases should be drafted and considered carefully and, when negotiating a break option, we would advise landlords and prospective tenants that pre-conditions concerning vacant possession and the condition of the property should be separately drafted in order to avoid any ambiguity, reducing the risk of dispute further down the line.

If you require assistance with a commercial lease, please do not hesitate to contact our dedicated team of real estate lawyers. We’d be more than happy to help.

Contact us

Acting for local, national and global clients, our Legal 500 and Chambers-rated real estate team has outstanding technical expertise to advise on a huge range of property transactions and non-contentious construction issues.

Disclaimer: All legal information is correct at the time of publication but please be aware that laws may change over time. This article contains general legal information but should not be relied upon as legal advice. Please seek professional legal advice about your specific situation - contact us; we’d be delighted to help.
Contact
Charlotte Cowdell BA (Hons), LLB
Senior associate, solicitor
View profile
Charlotte Brundson
Related services
Share this article
Resources to help

Related articles

Helping Joedan on their journey

Real estate

For almost three decades, Willans has advised a nationally renowned specialist in trade supply and home and commercial improvements. Here, in the first of a series of articles, we reflect…

Willans
Solicitors

Updates to stamp duty land tax

Real estate

Following the spring budget earlier this year, there have been changes to stamp duty land tax. With a new government having since been elected, there could be more updates on…

Tess Ciocci LLB (Hons), LLM
Trainee solicitor

Minimum Energy Efficiency Standard Regulation: where are we at?

Real estate

Our real estate team provides an update regarding minimum energy efficiency standards, and where it leaves landlords and tenants. We previously reported on the Minimum Energy Efficiency Standard (MEES) Regulations…

Emma Thompson LLB (Hons)
Senior associate, solicitor
Contact us