Beware of unclear break clauses

The High Court decided in Goldman Sachs International v Procession House Trustees Limited that a tenant’s break option was not conditional on the obligation to reinstate the premises.  The provisions relating to the break right were set out under the following clauses to the lease:

  • Clause 23.1 - the lease stated that the tenant should not be in arrears on the break date, furthermore, the break right was "subject to the tenant being able to yield up the premises with vacant possession as provided in clause 23.2"
  • Clause 23.2 - provided that "on expiration of such notice the term shall cease and determine (and the tenant shall yield up the premises in accordance with clause 11 and with full vacant possession)".
  • Clause 11 - required that "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 shall reinstate the premises to their original layout"

The tenant believed that that the lease would end on the break date provided that the rent was paid up-to-date and they give up vacant possession. The landlord took a different view argued that the break right was conditional on the tenant giving up vacant possession specifically in accordance with clause 11 i.e. the reinstatement provisions.

The court acknowledged that both parties’ interpretation were possible but the additional reinstatement obligation in clause 11 went too far.  It didn’t make sense to make the break conditional on clause 11.  They considered that full compliance with clause 11 was not a suitable pre-condition for the exercise of a break right and went beyond the usual requirements of vacant possession.  They took the view that the reference in clause 23.2 was more a reminder to the tenant to give vacant possession rather than to add the reinstatement obligation. The court applied the contra proferentum rule which means when there is any doubt about the meaning or scope of a clause, the wording will be construed against the party who put the clause forward.

The tenant still had an obligation to comply with clause 11 at the end of term and the landlord could sue for damages from the tenant for breach of this clause, however, this decision simply confirmed that a failure to comply with clause 11 would not negate the tenant’s ability to rely on the break right.

This highlights once again why it is so important for the parties of any contractual agreement make sure that the terms are clearly drafted.  As seen in this case, the courts will interpret any ambiguity in a contractual agreement against the party seeking to rely on it.  In terms of a break clause, the parties must be clear on what the tenant has to do before it can break the lease.

We should add also that the landlord has been given leave to appeal to the Court of Appeal, so watch this space, there may be more to come.

At Myerson our property team has extensive experience in acting for all parties in connection with landlord and tenant issues and would be delighted to provide further advice in this area should you require it.  Please call our Commercial Property team on 0161 941 4000 or email us lawyers@myerson.co.uk.

Contact Us

Share our latest news update