Exercising Break Clauses in Commercial Leases

The Court of Appeal has applied a strict interpretation to compliance with break clauses in Friends Life Ltd v Siemens Hearing Instruments Ltd [2014] EWCA Civ 382

On the facts, the lease contained a break clause stating “the Tenant may determine the Term on the Termination Date by giving the Landlord not more than 12 month's [sic] and not less than six month's [sic] written notice, which notice must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954”

In September 2012, the solicitors acting for the tenant served a break notice, indicating an intention to terminate the lease on the Termination Date. Although the notice referred to the relevant clause in the lease, it did not state that the notice was given under section 24(2) of the Landlord and Tenant Act 1954, as required by the break clause. However, the notice did, in its effect, comply with section 24(2).

The High Court found that the notice was valid as it substantially complied, although not explicitly, with the break clause. However, the Court of Appeal reversed the decision, stating that the break notice was not valid because it had not complied with all of the requirements set out in the lease. Their reasoning placed much emphasis on the fact that the break clause gave an option to the tenant to break the lease and it was therefore a unilateral contract.

For a unilateral contract to be valid, the question to be asked is "what have the parties agreed to" and not "what are the consequences of failing to do what was agreed". This is because an option is an irrevocable offer that must be accepted on its exact terms to be turned into a binding contract. As such, substantial compliance with the break clause was not sufficient.
 
The position was made clear by Lord Justice Lewison who said "The clear moral is: if you want to avoid expensive litigation, and the possible loss of a valuable right to break, you must pay close attention to all the requirements of the clause, including the formal requirements, and follow them precisely."

Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.

For further information, please contact Edward Vaughan at or Kenny Friday at