For many, a break clause in a Lease is seen almost as a ‘get out of jail free card’ whereby each party can terminate the lease at an earlier (often agreed) date. Having a break clause in a Lease can be advantageous to both a Landlord as it could assist on removing problematic tenants, and also to Tenants whose business endeavours may not have gone as well as they had hoped. Break clauses come in all sorts of shapes and sizes, with some being only for the advantage one party (unilateral break clause) or both (bilateral break clause) and often impose conditions. A common condition of a break clause is that the Tenant can not be in breach of any of their obligations under the Lease.
Case law has proved that if a break clause has not been drafted correctly, it could do more harm than good! There is a need to ensure that a legal advisor is instructed correctly to draft the break clause properly to ensure it is fit for purpose. Whilst it may seem like a relatively simple clause to include in the Lease, an incorrectly drafted clause can incur thousands of pounds in litigation costs, as was the case in the high court case of Riverside Park Ltd and NHS Property Services Limited [2016] EWHC 1313 (Ch) in which the Tenant (NHS Property Services) failed to exercise their right to break.
When the Lease was first granted, the Property was open plan and during the term of the lease, they made alterations to the property with the consent of the Landlord. When the tenant tried to exercise the break clause, the High Court held that the break was ineffective as the tenant had failed to give vacant possession as they had not ‘made good’ the alterations they had carried out to the Property. The Landlord successfully argued that the tenants alterations substantially prevented or interfered with their enjoyment of the Property.
With such large organisations such as the NHS being caught out by break clauses, it is important for both Landlords and Tenants to ensure their legal advisor drafts these clauses correctly, and that they also fully understand their obligations under the break clause.