BREAKING BADLY: The Evolving Challenge of Lease Break Compliance

Recent case law has highlighted the complex risks and potential pitfalls of successfully executing a conditional break clause in a lease.

Tenant break options are generally seen by the courts as very beneficial to a tenant, any conditions that have to be fulfilled for the break to be successful are strictly upheld.  In the most simple form these conditions may require all rents to be paid, while at the other end of the spectrum very onerous (sometimes near impossible) conditions may be to fully comply with all lease terms.

In between this are the break conditions that require the tenant to return the premises with “vacant possession”. In general terms this has been interpreted to mean that the premises must be free of the tenant’s personnel, furniture, freestanding items (chattels) and the landlord given exclusive possession. Achieving this would normally see the lease successfully broken.

The recent piece of case law (Riverside Park Limited v NHS Property Services (2016)) has potentially changed this generally accepted approach and extended the scope of works needed to achieve vacant possession compliance. In this case it was held that tenant partitions that remained in the premises at the break date did not provide the landlord with vacant possession and the lease therefore was not successfully broken. Whilst each case needs to be judged on its own merit this case could in future extend the scope for what works may be required to comply with a break requiring vacant possession as a condition.

Although there are some nuances of the case above, it seems it has pushed the boundaries of what was the previously accepted requirement for vacant possession, and is likely to encourage parties to test this further.

Below are a few pointers to make sure you don’t get caught out by a conditional break:

1) Try to avoid the conditions – When negotiating terms of a lease that are being drafted, ensure any break option does not have conditions associated with it for it to be effective.

2) Get early advice – At the point of deciding whether or not you want to break a lease, get legal and building surveying advice on the practicalities of doing so, and what the challenges of achieving compliance are.

3) Leave enough time – You may be compelled to undertake substantial repairs and reinstatement works to successfully meet the conditions to execute the break. This needs to be factored into your programme and tie in with dates for serving break notices.

4) Provisioning – Get early advice for setting budgets. The strict requirement for compliance means this is not the time to cut corners. Healthy and accurate budgets will be needed so expert advice is required.

5) Negotiate – It is usually lower risk to negotiate your way out of a conditional break rather than tackle the break conditions. Having an expert surveyor engage in early negotiations with the landlord will give you the best chance of securing an uncontested guaranteed break of the lease.

So if you are thinking of exercising a break option to bring a lease to an end, it is vital you get both legal and building surveying advice on practical steps to ensure you do not become locked into an unwanted lease.

Dilapidations, Landlord, Occupier,
Simon Brown

Simon Brown

Director

Building Consultancy

+44(0) 20 7182 3606

simon.brown@cbre.com