Lease breaks are nothing new. They have been around a long time. It is becoming increasingly rare to see 20 or 25 year leases. Tenants want flexibility in their lease term, so they can ‘get out’ if needed. Business can expand or retract, and as such their premises requirements will also expand and retract. Lease breaks give the tenant a chance to hand the property back to the landlord if it no longer fits their needs. Most lease breaks will have certain conditions attached to them, which need to be complied with if the break is to be effective.
Lease breaks have always been a contentious source of litigation, primarily due to the compliance with the conditions of a break, which may look innocuous at first. Of course, many lease breaks are exercised with no problems at all, but when the market is tough, landlords can be reluctant to let tenants go and may look closely at the conditions of a break clause.
There is a wealth of case law litigation surrounding lease breaks and the conditions attached to them. Conditions can include payment of rent, the provision of vacant possession or material compliance with the lease terms. There are many other conditions which could be attached to a lease break, but all these conditions are potential booby traps which could scupper the tenant’s break. Indeed, there have been cases where tenant’s breaks have failed on what seem to be minor infractions of the lease break conditions. It is not enough to almost comply with the conditions. The condition has either been satisfied or it has not. There is no grey area here.
It is a common condition of most lease breaks to provide ‘vacant possession’ at the break date. Due to recent case law surrounding the provision of vacant possession, we have seen a laser-like focus on ensuring the removal of tenant’s fit out and alterations, so as not to fall foul of the requirement to provide vacant possession.
However, is the provision of vacant possession enough to satisfy the break? A recent case (Capitol Park Leeds Plc v Global Radio Services Limited) in which I was instructed on behalf of the landlord, has given tenants another headache. The tenant was found to have failed to exercise the break properly, not because they hadn’t removed enough of their fit out, but because they removed too much of the landlord’s property.
The fact of the matter is that in this climate, more and more tenants are going to review their premises requirements closely as more staff choose to work from home. This is likely to result in an increased attention on lease breaks. Tenants will want to activate breaks and landlords will be looking closely at the wording of the break clauses and the tenant’s compliance with any conditions. Given these polarised positions and the increased likelihood of disputes arising, it is critical that tenants and landlords have proper representation when dealing with the thorny issue of lease breaks. Sound legal opinion and experienced technical knowledge from a building surveyor is vital.
DW Building Consultancy Limited can act for either landlords or tenants and provide that experienced perspective needed to help formulate a strategy for dealing with lease expiries or lease breaks.