Commercial tenant? Watch out for conditions on break clauses in leases

Commercial tenants will often accept conditions attached to a break clause on the basis that they look harmless. Typical conditions are things such as ‘giving back the property with vacant possession’. Or the tenant ‘having complied with the tenant’s covenants in the lease’.

These types of conditions can be disastrous for a tenant who perhaps wants to end a 10 year lease in the fifth year of a lease term and the tenant has the benefit of a break clause.

The Code for Commercial Leases recommends that the only conditions attached to a break clause in a commercial lease are having paid the annual rent (rather than all sums due under the lease). And giving back the property to the landlord free from any sublettings the tenant may have created.

In the recent High Court case of Avocet Industrial Estates LLP v Merol Ltd, the Court held a tenant’s exercise of the break clause to be invalid. The break clause in the lease stated that 'all payments due under the lease' had to have been paid before the break date. The landlord successfully argued that there was interest outstanding on some previous late payments and the judge agreed with the landlord. So the lease and liability for rent continued.

The case is a useful reminder that you can easily be caught out with break clause conditions. If you have a lease with a break clause that contains conditions, it's always wise to take independent legal and surveying advice. This is to ensure you've complied as far as you can with those conditions and don't end up with another five years or more rent to pay.

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