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Conditional Break Clauses

The recent case of Riverside Park Limited v NHS Property Services Limited 2016 EWHC 1313 (Ch) has highlighted the issues surrounding conditional break clauses and the risks that tenants take when signing a lease containing one.

The tenants in the case had signed a lease of the premises in 2008. At the time the lease was granted, the premises were open plan. The tenant then proceeded to install dividing walls (demountable partitions) in the premises. The lease contained the tenant’s right to break, however this was subject to the condition that the tenant must give vacant possession of the premises.

Break clauses that are subject to pre-conditions are risky for tenants in particular and this case is no exception.
The tenant gave notice of its exercise of the right to break, but when the break date arrived, the tenant had left some demountable partitioning in the premises.
The question for the Court to decide was whether this demountable partition was a chattel and not a fixture. The intentions of the tenants cannot affect the question of whether the chattel has become part of the freehold (Elitestone Ltd v Morris [1997] 1 W.L.R. 687).
The Court decided that the demountable partitioning was a chattel and, as chattels must be removed for vacant possession, the tenant has not complied with the pre-condition. This meant that the break had not been truly exercised.
The lease was therefore still continuing and valid, rendering the tenants liable for the rent for the remainder of the term of the lease.
The Court requires strict compliance with any pre-conditions of a break clause to be complied with fully for the break to become effective.
It is advisable when acting for a landlord or tenant that these clauses are fully understood by all the parties to the lease. Tenants may find that, although they believe the tenancy to have ended; they may still be liable. On the other hand, landlords may find that uncertainty is created by these types of conditions.