Break Clauses and Vacant Possession

Break Clauses  –  When is vacant possession not considered to be vacant possession for the purposes of a break clause in a business lease?

Break clauses can be a useful tool which can allow a tenant to end a lease before the contractual term provided that any pre-conditions noted in the lease are satisfied. When negotiating a break clause, a landlord may try to impose a condition which provides that the tenant must give vacant possession on the break date. Tenants should be cautious of agreeing to such a pre-condition, as satisfying this pre-condition can cause difficulty.  In the case of NYK Logistics (UK) Ltd v Ibrend Estates BV [2011], it was held that vacant possession is not as simple as just leaving the property. In the event that a tenant was to leave chattels or goods or demountable partitioning at the property, this could lead to a potential argument that the property is not being left with vacant possession even though the tenant, and its sub-tenants and licensees (if applicable), may have physically left the property itself.

The landlord could argue that the pre-condition has not been satisfied, and therefore prevent the tenant from exercising the break clause, which in turn could then have significant implications for the tenant and its business. The break clause needs to be carefully drafted to ensure that the tenant does not find themselves in difficulty when trying to exercise this, and therefore advice needs to be taken before any such clauses are agreed.

For any assistance in dealing with break clauses in business leases, whether this is in terms of drafting a break clause, or reviewing it, then please feel free to contact our commercial property department.

Sumeet Shangari – Director – Commercial Property

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