Q: My tenant has served notice to exercise their break clause. What are the conditions of the break, and do they have to comply with the reinstatement clause in the lease?
A: Put simply, it depends on what the break clause actually says. The courts interpret break clauses strictly, so the real question is: what are the conditions the tenant must satisfy to exercise the break successfully? It is usual for the primary condition to be the service of a valid written notice on the landlord to trigger the exercise of a break clause.
Other than service of the notice, the 2007 Code for Leasing Business Premises in England and Wales suggests only three conditions should be agreed when a lease is drafted. These are: the tenant is up to date with the principal rent, not including service charge or other amounts reserved as rent in the lease; the tenant gives up occupation; and the tenant leaves behind no continuing subleases.
That said, many leases contain more onerous break conditions and advice should always be sought. A well-advised tenant should also require an express obligation on the landlord to refund any overpaid rent relating to the period after the break, when it is exercised partway between rent payment dates. However, it is ultimately up to the parties to decide what the conditions should be when negotiating a lease.
For example, if your break clause requires the tenant to yield up the premises with vacant possession and then cross-refers to the yielding up clause, this is not generally sufficient to make compliance with the latter a condition of the break. The courts consider that the natural and ordinary meaning of drafting in this form is that vacant possession is the only condition of the break. If the landlord requires reinstatement to be a condition of the break, it should expressly say so in the break clause.
That does not mean to say that the tenant is not liable for breaches of the yielding-up clause, only that such breaches will not prevent the successful operation of the break but will give the landlord a claim for dilapidations.
Prof. Sara Wilkinson FRICS, Dr Gill Armstrong, Dr Kusal Nanayakkara, Mark Willers FRICS, Prof. Jua Cilliers and Dr Robert Fleck 08 December 2023