Tenants have always known that complying with the conditions of a break clause can be difficult. The landlord is likely to scrutinise the break clause word by word and if there is an issue to be taken – and no new tenant waiting in the wings to occupy the premises – the landlord is likely to take the point. The effect of the break not operating will be that the tenant remains liable for the rent on the premises that it has vacated and no longer wants or needs. In some leases there can be 10 or more years remaining before the next opportunity to terminate the lease and so the consequences for both parties are significant.
The Courts have recently held that vacant possession not only means empty of all people, but also that the premises are in a suitable state for the landlord to enjoy immediate occupation. The break clause in the case required (as most break clauses will) the tenant to give vacant possession of the premises. The tenant had installed partitioning and then failed to remove it at the end of the term. The partitioning in this case was of an unusual configuration, such that any new tenant was unlikely to want to keep it. It had been installed for the tenant’s specific needs, not to generally improve the premises. The partitioning was constructed so that all utilities and air conditioning were within raised floors and suspended ceilings, so that they could be removed without damaging the fabric of the building.
The landlord successfully argued that the partitioning had not become part of the building and instead still belonged to the tenant. The effect of the partitioning remaining was that the tenant had not given vacant possession of the premises and the landlord could not immediately occupy, and so had failed to validly operate the break clause.
The Court accepted that this was a ‘harsh’ result for the tenant as it made the tenant liable for ongoing substantial rent simply for failing to undertake a few thousand pounds worth of work. However, in the context of establishing the legal position there was “no room for general considerations of fairness or conduct”. Any landlord or tenant dealing with termination under a break clause will need to look very carefully at the wording of the break clause and the actions of the tenants.
If you require any further information please contact Sophie Morley.