Tenant’s Exercise Of Break Clause Ineffective Because Conditions Not Met

Tenants planning to exercise break clauses must ensure they comply absolutely and precisely with any necessary conditions or risk the break being ineffective, a Scottish legal decision has confirmed.

A tenant of two business offices under two separate leases purported to exercise break clauses to bring both leases to an end by serving the appropriate notices. A break clause allows a tenant to get out of a lease at certain points specified in the lease, provided the tenant meets certain conditions.

Under the lease terms, the breaks could only be exercised if the tenant was not in breach of any obligations ‘at the date of service of such notice and/or the termination date’. The landlord claimed the breaks were ineffective because the tenant was in breach of its repairing obligations at the date it gave the break notices. The tenant admitted it had been in breach at that time but, by the termination date, had spent £1.3m and complied with the repairing obligations.

The court ruled that the tenant’s exercise of the break clauses was ineffective and the tenant continued to be liable for rent for the full terms of the leases.

Recommendation

• Tenants wishing to exercise break clauses must take specialist legal advice to see if and how they need to comply absolutely and precisely with any necessary conditions, or risk the break being ineffective.
Case ref: Arlington Business Parks GP Ltd v Scottish & Newcastle Ltd [2014] CSOH 77

19 January 2015