The High Court recently ruled on a case involving a £20 million lease break of Goldman Sachs’ London office. The case turned on the interpretation of two clauses and demonstrates the need for clarity and precision when drafting break clauses.
The Facts: Goldman Sachs (the tenant) leased office space in London from Procession House Trustee Ltd (the landlord). The lease was for 25 years at £4 million per year, and had a break option at the end of its 20th year. The break clause contained the following provisions:
Clause 23.1: This stated that the break option was “subject to the Tenant being able to yield up the Premises with vacant possession as provided in Clause 23.2"
Clause 23.2: This stated that “On expiration of such notice, the Term shall cease and determine (and the Tenant shall yield up the Premises in accordance with clause 11 and with full vacant possession)"
Clause 11: This contained obligations on the tenant for reinstatement of the premises.
The Judgment: The tenant applied to the court for a decision on whether clause 23.1 required them to carry out the reinstatements set out in clause 11 as a precondition for the determination of the lease. The tenant in this case argued it did not and the landlord argued that it did.
While the court accepted that the wording could be read either way, it ruled that the tenant’s interpretation was the ‘natural and ordinary meaning’ of the clauses. The reasoning behind this was that clause 23.2 contained two separate requirements and clause 23.1 mentioned one of these, vacant possession, specifically. This seemed to suggest it was referring specifically to this aspect of clause 23.2. Interestingly, the court suggested that if the wording of 23.1 had read “vacant
possession and as provided in Clause 23.2", this may have changed the decision.
Though it was a secondary issue which was not key to the judgement, the court also took into account the fact that clause 11 contained terms, including ‘comparable quality’ and ‘reasonable satisfaction of the landlord’, which were inappropriately vague for a precondition to exercise a break option.
Conclusion: This case highlights the importance of being very clear and specific as to the requirements of a break clause and demonstrates the enormous possible consequences of mistakes. In this case, merely adding an ‘and’ could possibly have earned the landlord £20 million. The case is currently pending appeal.
Commenting on the case, DJB Partner Stuart Bould said:
“Wherever possible, a tenant should always aim to achieve a break option that is not subject to any pre-conditions other than the giving of the requisite period of notice to the landlord. Clearly there will be obligations on the part of the tenant to fulfill when the lease has come to an end, but these must not be pre-conditions to the tenant’s ability to terminate the lease.”