Failure to reinstate would not negate a break right

When a break clause requires a tenant to give vacant possession to its landlord, the tenant must remove all its possessions, return the keys to the landlord and ensure that no one is in the property on the break date. In other words, the tenant must not do anything to suggest that it is still using the premises or that would substantially interfere with the landlord’s ability to assume immediate and exclusive possession, occupation and control of the property. Goldman Sachs International v Procession House Trustee Ltd [2018] EWHC 1523 (Ch) concerned a break clause that required the tenant to give vacant possession and also contained a reference to another provision, which led, in turn, to a yielding up clause in the lease. This required the tenant to remove any alterations or additions (making good any damage caused to the reasonable satisfaction of the landlord) and to restore the premises to the layout and condition described in a “works specification”. The premises were unoccupied and the tenant wanted to know precisely what was required to operate the break right successfully on the break date in 2019, which would save it £20m in rent. It acknowledged that it was contractually liable to reinstate the premises and that failure to do so would render it liable in damages. But would it suffice to provide vacant possession on the break date, and to pay any resulting damages? Or should it comply with its reinstatement obligations as well? The landlord drew the judge’s attention to Riverside Park Ltd v NHS Property Services Ltd [2016] EWHC 1313 (Ch); [2016] PLSCS 222. It argued that the lease required the tenant to return the premises in a state that would enable the landlord to re-let them immediately. And the potential loss of the break right would provide a powerful incentive to ensure that the tenant complied with its obligations so that the landlord could do so. The tenant argued that loss of the break right would be a disproportionate response to what might be relatively inconsequential breaches of its obligations. It would be relatively easy to decide whether it had provided vacant possession. But there was much more room for dispute about its reinstatement obligations, which were, in some respects, necessarily imprecise (referring, for example, “to the reasonable satisfaction of the landlord” and to the use of “materials of comparable quality”). The tenant claimed that these were not suitable pre-conditions to the exercise of a break right and, as a result, that it would make less commercial sense to link them together. The judge accepted that both parties’ constructions of the lease were possible. But, as a matter of language, he preferred the tenant’s interpretation; in his view, this was the more natural reading of the words used in the lease. In so far as commercial common sense was relevant, the judge agreed that it would make sense to be able to assess, relatively easily, whether the break right had been validly exercised or not. And, in so far as the “contra proferentem” rule applied, that lent weight to the tenant’s arguments too. Had the landlord wished to make compliance with the reinstatement obligations a precondition of the exercise of the break right, it should have said so, instead of using a cross-reference which the judge described as “ambiguous”. Allyson Colby, Property Law Consultant