Michelle Cox

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Case Review – Goldman Sachs International -v- Procession House Trustee Limited [2018] EWHC 1523 (Ch)

Property Focus / 26 September 2018

The latest break clause case has provided us with more interesting revelations. The High Court has held, that on its true construction, a tenant’s break option was not conditional on compliance with its reinstatement obligations.

This case is interesting as an alternative to many of the previous break clause cases which conclude that the extent of the contract and conditions imposed on a break are absolute.  In this case, the tenant (Goldman Sachs) issued a claim against the landlord for determining the correct construction of a break clause.  The break option required the tenant to yield up the property “in accordance with Clause 11 and with full vacant possession”.  Clause 11 required the tenant to remove any alterations and reinstate the property with its original layout and condition to the reasonable satisfaction of the Landlord.

Ordinarily, based on previous case law, such a clause would be absolute and binding, requiring the tenant to carry out all obligations in accordance with the break.  It was unsurprising therefore that the landlord argued that the break option was conditional on full compliance with Clause 11, as well as delivering vacant possession.

The Court, however, found that the natural and ordinary meaning of the relevant clause was to impose a single condition to yield up with vacant possession.  The Court stated that the wording of Clause 11 was open to interpretation, and this allowed room for argument.  The clause itself used phrases such as “to the reasonable satisfaction of the landlord” and referred to specific work and the use of comparable materials.  As a result, the Court found that Clause 11 was not a suitable condition to be attached to the break clause as it would not enable either party to proceed with any certainty.

This case demonstrates how difficult it is to ensure compliance with the break condition where the wording is particularly subjective.  Of course, this decision turns on the construction on the particular clause and lease in question; tenants will welcome the approach taken by the Court to consider the individual case on its own merits.

There is also a lesson here to ensure that break clauses and any conditions attached to them are clearly drafted so that there is no ambiguity and no doubt of either party as to what is required in order for a break to become effective.

Comments

The tenant sought a declaration to the effect that its right to break the lease was not conditional upon the requirements of Clause 11 to remove any alterations and additions and reinstate the property to its original layout.

The Court found that whilst the tenant had an obligation to comply with Clause 11 at the end of the lease term, the failure to comply with those requirements would not result in the loss of its break rights.

It is worth noting that the landlord was granted permission to appeal the decision in the Court of Appeal.  The Court of Appeal dismissed that appeal on 5 July 2018, although as yet, this is unreported.

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