Are break clauses going to be tightened?

The recent case of Capital Park Leeds Plc -v- Global Radio Services Limited may herald a return to more conditioned break clauses.

In this particular case the Tenant handed back premises which were described in the case as “dysfunctional” having exercised the break clause. The Landlord sought to claim that the break was not validly exercised because vacant possession had not been given because the premises were left in an unusable state. The High Court agreed with the Landlord but, fortunately for the Tenant, the Court of Appeal agreed with the Tenant as the break clause was not expressed to be conditional on the Tenant having observed and performed any covenants in the Lease including repairing obligations. They also emphasised the point that the Landlord could recover compensation from the Tenant for breach of the repairing covenant separately.

Historically, break clauses were hedged about with conditions to the extent that they almost became something in the gift of the Landlord. The Tenant had to pay the rent and all monies due under the terms of the Lease, give vacant possession and there had to be no breaches of any of the Tenant’s covenants.

The last condition was often softened slightly by referring to there being no’ material’ breaches. The problem of course being what is a ‘material’ breach?. It does not have to be substantial.

The guidance in the industry has gradually moved towards less conditioned break clauses so that you can usually negotiate that the clause is conditional on having paid the rent and any monies due provided they have been demanded at least 21 days before the break date and that the property should be left free of occupants or any under leases.

The worry is that this case may provoke Landlords to seek to put back in some kind of condition relating to the observance of covenants in the lease so they do not get stuck with badly repaired premises and have to pursue a tenant for compensation.

Time will tell, but it is something to bear in mind when you are acting for Landlords and indeed Tenants.

Posted on: 08/07/2021

This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.

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