another breakdown

Tenants are used to seeing a list of pre-conditions attached to a break clause in a lease.

For example, before a tenant can exercise the break clause, they must have paid the rent and any other payments due under the lease and

materially complied with the tenant's obligations in the lease.

The decision in a recent High Court case is important as it is the first time the court has looked at the meaning of ‘material compliance’ in the context of a break clause. (Fitzroy House Epworth Street (No 1) Ltd -v- The Financial Times Ltd).

The tenant, The Financial Times Ltd, was permitted to break the lease provided it had materially complied with all the tenant's obligations in the lease, including the repairing obligation.

To materially comply, the tenant carried out works costing £1 million. It tried to discuss the works being carried out with the landlord and/or the landlord's agent but they refused to get involved.

So the tenant exercised the break clause but the landlord claimed that as there were minor defects, the break clause was invalidly exercised.

The court concluded that even with the minor defects, the tenant had taken all reasonable steps to materially comply with the tenant's obligations in the lease and exercising the break clause had been valid. The minor defects had not stopped the landlord finding a new tenant.

It appears in the case that the tenant took huge steps and spent a lot of money to materially comply with the tenant's obligations. Whether it means other landlords should expect the same level of compliance remains to be seen.

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