Court rules in favour of tenant on break right conditions

The recent case of Goldman Sachs International v Procession House Trustee 1 Limited and Procession House Trustee 2 Limited [2018] provides a welcomed sensible approach to the application of break clause conditions.

A break clause will usually be strictly construed by the courts and any conditions attaching to it must be strictly performed.

Tenants have struggled with this strict approach for years, meaning that break conditions have been known to trip up even the most conscientious of tenant. This has often resulted in tenants losing their ability to break due to a trivial breach.

In this recent case, the court considered whether, on its true construction, a tenant’s break option was conditional on compliance with the reinstatement obligation, as well as the requirement to yield up the premises with vacant possession on the break date.

The tenant applied for determination of the extent of its obligations under the conditions.

The parties agreed that the break clause was conditional upon the tenant yielding up the premises with vacant possession. They also agreed that the tenant was obliged to comply with the requirement for reinstatement at the end of the lease term.

The landlord argued that the break clause was conditional on the tenant complying with its reinstatement obligations in full.

The court decided that the natural and ordinary meaning of the break clause was to impose a single condition to yield up with vacant possession. The court felt that the reinstatement clause was not sufficiently certain as to the specific requirements for compliance to enable it to be a suitable condition to the break.

This provides both landlords and tenants with a useful reminder that they must ensure that any break conditions are drafted clearly, particularly when relating to the performance of a specific obligation within the lease. To avoid any dispute, the parties should ensure that there can be no doubt as to what is required for compliance.

It is worth noting that the landlord in this case has been granted leave to appeal, so there may be a further instalment in this matter yet.

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