Break Clauses in Leases

A Court of Appeal decision highlights the risks for commercial tenants of failing to correctly exercise the break clause in their lease. In this case, the tenant failed to give vacant possession in accordance with the terms of the break clause in its lease. The tenant wanted to carry out repairs to the property to control costs and avoid a dilapidations claim for damages in excess of its own costs in doing the repairs. There was no obligation on the tenant to complete the works before vacating the property; they were only required to pay rent up to the break date and give vacant possession. 

By deciding to stay in the property to complete the repairs, the tenant failed to provide vacant possession and was, therefore, not entitled to terminate its lease. Fortunately, the tenant had a further right to terminate eight months later, which they correctly exercised. However, they still had to pay an extra eight months' rent and legal costs.

This checklist highlights the practical issues that a tenant should consider when exercising a break clause.

For further information, please contact our Commercial Property Team.

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