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Break clauses: only strict compliance will do…

29 April 2014

After a glimmer of hope from the High Court last summer in what many saw as a strange decision, the Court of Appeal has now sent a firm message to tenants trying to break their leases - get it right or you will stay locked in.

A lot at stake

The economic downturn gave rise to a number of cases in which landlords challenged attempts by their tenants to break their leases.

In a market where re-letting was difficult, and in some cases impossible, some landlords saw their best opportunity of maintaining an acceptable income stream through holding the tenant to the terms of the lease rather than allowing them to walk away. 

We have seen a number of what can often appear to be harsh decisions with tenants being penalised for relatively minor failings to comply with the conditions attached to the break-clause. The result being that they are then tied in for the remainder of the lease. 

A lucky break?

A decision of the High Court in Siemens Hearings Instruments Limited v Friends Life Limited [1] was a rare piece of good news for tenants. In short, the break-clause in question required the tenant to make specific reference to a particular section of the Landlord and Tenant Act 1954. 

It had been included to address a potential concern at the date of the grant of the lease which was no longer an issue when the tenant sought to exercise the break. At that point the required wording made no sense as a matter of law and so was arguably irrelevant. 

Going against the prevailing law in this area, the Judge found that the tenant had successfully operated the break even though the notice did not include the magic words. Earlier this month, the Court of Appeal overturned the decision of the High Court restating what most practitioners had understood the law to be. 

The Court of Appeal reviewed the authorities in this area and confirmed that a break-clause, as a form of option, requires the party seeking to operate it to adhere strictly to the terms of its exercise. 

Follow conditions to the letter

The lesson for tenants is crystal clear: if you fail to follow the strict requirements of a break-clause don't expect the court to save you even if the requirement in question doesn't appear to make any sense or the result seems unfair.

[2013] EWHC B15 (Ch)

This article was written by James Souter.

For more information please contact James on +44 (0)20 7427 6716 or james.souter@crsblaw.com.