In light of the uncertainty for businesses during the current Covid-19 pandemic, many tenants may seek to end the leases of their premises early by exercising the right to break in their lease. On exercising the break, in theory the lease will end, releasing the parties from future liability.
The wording of break clauses often includes various conditions which the tenant must fulfil to validly exercise their right to end the lease. These must be strictly complied with to ensure the break is validly exercised.
Common conditions which are attached to a tenant’s right to exercise a break in commercial leases are often:
- that all rent and other sums payable to the landlord have been fully paid at the break date;
- that there are no breaches of the terms of the lease by the tenant; and
- when returning the property to the landlord, this should be with ‘vacant possession’.
This is not, however, an exhaustive list.
What does ‘vacant possession’ mean? It means the property must be returned to the landlord empty of the tenant’s personal property, and free of all people and any third-party interests (e.g. an undertenant) at the end of the lease. Whilst this may seem quite simple to comply with at face value, it is a condition which often leads to a dispute between the landlord and tenant.
There have been numerous cases whereby the court has determined that a tenant has not given vacant possession and therefore the right to break has not been validly exercised. Some examples are as follows:
- where a tenant’s contractors were still actively working at a property to carry out remedial decoration on the break date;
- a tenant who had retained keys to premises after the break date was found, on inspection by the landlord’s agent, to still be clearing the property of its possessions and removing refuse and cleaning;
- a tenant who held onto keys to a property for security purposes and erected concrete blocks to prevent trespassers getting access;
- a tenant leaving behind a number of its own chattels, including freestanding partitioning, desks, cabling, computer equipment and a photocopier;
- a tenant who removed too much from the property (it was stripped of ceiling tiles, ventilation equipment, lighting, radiators and floor boxes).
A vacant possession condition can therefore quite easily present issues for a tenant in terms of timing works and removal of its property without causing too much disruption to its business so that the lease’s requirements are fully complied with at the break date. If a dispute arises and the court finds against the tenant, this could be very financially costly for it.
The above highlights the issues that can arise from a ‘vacant possession’ condition attached to a right to break but other conditions can present other pitfalls.
If you have any further queries, and would like advice on the negotiation or exercise of a tenant break clause or would like to book an appointment, please call 01256 320555 or email us at mail@clarkeandson.co.uk.
