Breaking Out Requires Prior Consideration

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Leases often contain break rights allowing Tenants to terminate their lease early subject to specific conditions being complied with. Although every lease is different, the most common conditions are that the Tenant must have paid all rent up to date, the Tenant must not be in breach of its covenants under the lease and that vacant possession must be provided.

These requirements may seem straightforward to achieve, however recent case law proves otherwise.

In Riverside Park Ltd v NHS Property Services Ltd (2016) it was found that in order for the Tenant to effectively exercise its break that demountable partitioning which it had installed during the lease term should have been removed to provide vacant possession.

The main issue which was considered was whether the demountable partitioning was deemed to be a chattel or a fixture. A chattel is a moveable asset whereas a fixture is an item which is fixed and is therefore deemed to be part of the building.  The Court ultimately found that due to the specific nature of the partitioning, in that it was demountable, able to be removed without damage being caused to the building and that it was for the benefit of the Tenant, that in this instance the partitioning was a chattel.  As the Tenant had not removed the partitioning its break was deemed to be invalid and therefore the lease was still in force.  As such it was required to continue paying rent at approximately £74,000 per annum for the rest of the term (5 years!).

The decision in Riverside Park Ltd v NHS Property Services Ltd highlights the importance for Tenants to understand the provisions of their Lease and to give thought early on when deciding to exercise a break. Should the break not be exercised correctly a Tenant may lose its life-line and be stuck in a lease that it no longer requires.  This could potentially have a detrimental effect on the Tenant’s business.  From a Tenant’s point of view it is also wise to resist the Landlord’s inclusion of a condition that a break clause can only be exercised with vacant possession or if this is not accepted to qualify the obligation.

At Forbes our commercial property solicitors can assist in advising on your lease so that you fully understand your obligations. For further information contact our Property Solicitors on 0800 689 0831 or make an enquiry here.

Laura Bradley

About Laura Bradley

Laura Bradley is a Solicitor in the Commercial Property department at Forbes Solicitors. Within her blogs Laura deals with all aspects of commercial property including leases (from both landlord and tenant perspective), licences, acquisitions and disposals along with recent updates within the property sector.
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