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Break Clauses - Landlords and Tenants alike beware!

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The recent High Court cases detailed below demonstrate some of the complexities associated not only with the rights to exercising break clauses but also in ensuring leases correctly identify the parties thereto.  

The first case highlights the need for tenants to know their chattels from their fixtures. The High Court in Riverside Park Limited –v- NHS Property Services Limited was last month asked to consider if vacant possession had been achieved by the tenant when seeking to exercise its break clause in 2013.

Upon commencement of its lease of open plan premises the tenant had installed demountable partitions to create cellular offices. When it vacated the property after its purported exercise of the break clause the tenant failed to remove the partitioning. The Court was asked to consider if the partitioning amounted to chattels or fixtures and if by leaving them in place this interfered substantially with the landlord’s right of possession.

The Court found the partitioning to be chattels notwithstanding the fact it was fixed to raised flooring and a suspended ceiling.  As a consequence the tenant failed to properly exercise the break clause with its liability for the payment of rent continuing for five more years.

The second High Court Case concerns a Limited Partnership Landlord’s application to the High Court for a declaration as to the validity of the break notice served on its tenant.

The Applicant Landlord was a Limited Partnership created in April 2011 which originally consisted of two partners, increasing to a total of five some two months later. In 2010 the Respondent Tenant had taken a lease from the City of London Corporation for a term of ten years. The lease contained a break clause allowing the Landlord a right to terminate the lease on 27 September 2016 having giving at least six months prior written notice. On the 22 March 2016 the Applicant Landlord took an overriding lease of the premises from the City of London Corporation. On the same day its solicitors notified the tenant in writing of its new Landlord whom they described in the letter as “the Partnership” and simultaneously served upon them a break notice and Section 25 notice pursuant to the LTA 1925. The Tenant challenged the validity of the notices asserting the party giving notice was not the Landlord. The Tenant argued that a legal estate in land could not be vested in the name of a partnership but rather could only be held by a legal person or persons and therefore the Limited Partnership lacked legal personality.

Pursuant to the terms of the Limited Partnership Act 1907, the Applicant Landlord’s claim was dismissed. The Act provides that land held by a Partnership cannot be vested in more than four partners and that where more than four persons were named as trustees of grantees, the first four named should hold the estate as joint tenants in trust. Unfortunately from reference to such documents as those filed in accordance with the Act the identity of first four named could not be established. As a consequence the overriding lease could not have been granted to the Applicant Landlord and neither had it been granted to four of the partners individually. The applicant Landlord therefore had no right to serve the break notice on the Tenant.

There is a clear need for all concerned to seek expert legal advice in such matters. If in any doubt as to your position as a landlord or a tenant, do not hesitate to contact any of our commercial property team or property litigation specialists.