When agreeing break clauses on commercial properties it’s important to ensure the terms are clear and unambiguous.
Otherwise costly disputes can arise, as happened in a recent case involving Goldman Sachs and Procession House Trustee Ltd.
Goldman had taken out a lease for a term of 25 years from 1999, at a rent of over £4m per annum.
The term was subject to a break clause exercisable by Goldman after 20 years, so long as it was not in arrears and was able to yield up the premises with vacant possession.
There was also a Clause 11.1 which stated: “”Unless not required by the landlord, the tenant shall at the end of the term, remove any alterations or additions made to the premises (and make good any damage caused by that removal to the reasonable satisfaction of the landlord) and shall reinstate the premises to their original layout and to no less a condition than as described in the Works Specification.””
It also provided that the tenant would yield up the premises in accordance with the Works Schedule, subject to some further detailed provisions.
Goldman wished to exercise the break clause, but an issue arose as to whether vacant possession and payment of rent were the only conditions of the break clause or whether it also required compliance with cl.11 as a condition.
The High Court ruled in favour of Goldman. It held that Clause 11 had “less than precise conditions, so even a trivial breach of it could mean that the tenant was unable to exercise the break clause”.
Given the very drastic consequences for the tenant of a failure to comply with the conditions of the break clause, it was incumbent on the landlord to make it very clear what the tenant had to do to comply.
If it had wished to provide for strict compliance with cl.11 as a condition of the break clause, it should have said so.
Please contact Sonia Dad or Janice Young if you would like more information about break clauses or any aspect of commercial property law.