An update on conditional break options

13 February, 2012

There are few things which can make a property solicitor quite as nervous as ensuring that a conditional break option is operated correctly.

In the current market, tenants will be keen to take any opportunity to shed surplus properties, and many landlords will be concerned as to how they will re-let their premises once a tenant has gone. Consequently, their respective advisers will be checking the break conditions in leases more closely than ever, and a couple of cases heard by the courts in the last year have illustrated why conditional break options make professional advisers anxious.

The first was the Court of Appeal decision in Ibrend Estates BV v NYK Logistics (UK) Limited, which considered a vacant possession break condition in the lease of an industrial unit. The tenant had left some security guards and workmen at the unit to finish some final repair works after the break date, and the court rules that their presence meant that the tenant had failed to provide vacant possession and that the break had not been operated. The key point to take from this case is that, when faced with such a break condition, a tenant must not leave people or chattels behind that would substantially interfere with the landlord’s right to possession as at that break date.

The tenant in the second case of Avocet Industrial Estates LLP v Merol Limited and another also fell foul of a break condition. This case illustrated that, whilst it is relatively easy for tenants to comply with a break condition requiring the annual rent to be paid up to the break date, break conditions requiring all sums due under the lease to be paid can cause significant difficulties. In this case the tenant’s failure to pay interest on earlier rent payments that it had paid late caused it to fail to break the lease, even though interest had not been demanded by its landlord.

Break conditions throw up subtly different issues in every situation, and should therefore be treated with caution. A landlord or tenant concerned about compliance with break conditions should seek specialist professional advice with a view to deciding on a strategy as early as possible.