In many cases, landlords are prepared to provide tenants with the flexibility to determine their lease early by providing an option to break. However, landlords will usually require that certain conditions are complied with: payment of all rents to date, compliance with tenant covenants and delivery of vacant possession of the premises by the intended break date. The tenants must ensure that these requirements have been complied with as a failure to do so could lead to an invalid break, as recently held by the Court of Appeal.
The tenant in that case decided to exercise an option to break under the terms of its lease and was required to be up-to-date with the rent and deliver vacant possession of the property on the break date. To avoid any dilapidation claims, the tenant employed contractors to undertake repairs, even though this was not a condition of the break clause.
The works were not completed by the break date and the tenant had two contractors still on the premises after the break date. Despite the tenant contacting the landlord to agree an extension and the landlord failing to respond, the Court held that the break was invalid as the tenant was still in possession.
In the Court’s view, the fact that the landlord had failed to collect the keys as originally offered was not enough to show that the landlord had waived the requirement for vacant possession. The impact of not delivering vacant possession in the case meant that the tenant was still bound by the terms of the lease after the break date, including liability for the rent.
To provide vacant possession, a tenant must ensure that they have moved its people (including staff and contractors) and its belongings off of the property by the break date. If the tenant requires additional time to undertake any repair works, this would be best dealt with by agreeing a licence with the landlord after delivering vacant possession on the break date.
Getting this wrong can leave a tenant stuck with a lease that it no longer wants until the next opportunity to break it comes along.
If you are a tenant hoping to validly exercise a break option in your lease, or a landlord concerned about compliance with break conditions, it is recommended that you seek legal advice.