The voice of business in the Tees region | 59
The pitfalls of break options
and what to avoid
Break options advice from Sanderson
Weatherall associate partner Darren Slight
T
he prevalence of break options in
leases continues to increase due to
occupiers’ ongoing requirements to
achieve short, flexible lease terms when
negotiating against landlords who ideally are
seeking as long a lease terms as possible.
However, care and consideration needs
to be taken in the way break clauses are
drafted to ensure occupiers are not caught
out by onerous break clause conditions.
Following the Riverside Park Limited v
NHS Property Services Limited case, it is
very important to identify what is a chattel
and what is a fixture and fitting if the
specific break option requires you to give up
vacant possession.
In that case, the break was conditional on
giving up vacant possession. However, the
tenant’s partitioning was not removed by
the break date and the court held that the
tenant’s failure to remove the partitioning
at that date effectively resulted in them
not giving up vacant possession, which
rendered the break option ineffective,
resulting in the lease continuing.
It is therefore important that occupiers/
tenants avoid break options being
conditional on giving vacant possession and
instead insist on the wording “Giving up
occupation free of subsisting tenancies” to
avoid this pitfall.
Another area of contention/risk is when
break options are drafted requiring the
tenant to pay all rents and service charge in
full at the break date even if that break date
falls between quarter days.
Following the Marks & Spencer Plc v BNP
Paribas Services Trust Company (Jersey)
case, where M&S had to pay the insurance
rent, a full quarter’s rent, car parking licence
fees, service charge and a break premium
up to the March quarter day, even though
the break date in the lease was January
24, and then ultimately found that they
could not reclaim the overpayment from
the landlord after the event, it is important
that any tenant who agrees to break options
between quarter days should now ensure
that there is an express provision requiring
the landlord to refund any overpayment
beyond the break date.
Ideally any break option should only
require the tenant to pay the “basic rent”
up to the break date to ensure there is
no overpayment or uncertainty that might
render any break ineffective.
Whilst the risks associated with break
options currently remain, it is likely that
the proposed new RICS Code for Leasing
Business Premises that the RICS is
currently consulting on will mitigate these
risks going forward.
They are proposing to make RICS-
regulated surveyors or firms follow
mandatory requirements. One of the areas
identified is break options.
They consider that there should be
restrictions to there being no rent arrears,
that only the basic rent should be paid up
to the end date and that the tenant is only
required to give up occupation to leave
behind no sub-tennants or other occupiers.
If these proposals are introduced, it
will hopefully avoid the previous pitfalls
and ensure that tenants/occupiers are
not trapped by onerous conditional break
options going forward.
Darren Slight
Associate partner, Property
Management & Lease Consultancy
Sanderson Weatherall LLP