In the recent case of Capitol Park Leeds plc (“Capitol”) v Global Radio Services Ltd (“Global”) (2021) the Court of Appeal had to determine whether Global had terminated a commercial lease of a property in Leeds by the exercise of a break clause.

The lease was for a term of 24 years beginning on 12 November 2001. In February 2017 Global sought to bring the lease to an end on 12 November 2017 by exercising the option to determine in the lease. The clause provided that Global could terminate the lease on 12 November 2017 if they: a) provided at least 6 months but not more than 9 months written notice, b) paid all rent and other payments due under the lease and c) gave vacant possession of the Premises.

The decision of the High Court was that the lease continued as Global had failed to give vacant possession of the Premises in accordance with the break clause.

The Premises were defined in the lease as including the original building on the property, all fixtures and fittings at the Premises whenever fixed (except those which were generally regarded as tenant’s or trade fixtures and fittings) and all additions and improvements.

After giving notice to terminate Global had stripped out various key items of the Premises, including ceiling tiles and grids, window sills, fire barriers, heating pipework and radiators, smoke detection system and lighting. The items were not replaced before Global vacated the property.

The High Court determined that the requirement for vacant possession had not been satisfied, as the definition of Premises prevented Global from handing back an empty shell of a building which was dysfunctional and could not be occupied. The High Court held that Global gave back considerably less than “the Premises” as defined in the lease and therefore did not give vacant possession. The state of the property meant Capitol’s use of the property was substantially impeded. Global appealed the decision of the High Court.

The Court of Appeal considered whether Global’s removal of the items meant that it did not give vacant possession.

The Court of Appeal held that a condition for vacant possession requires the tenant to return the property to the landlord free from “people, chattels and legal interests” and not to the physical condition of the property. The Court of Appeal therefore determined that even though the property was left in a dire state it did not preclude valid exercise of the break clause.

Further, the Court of Appeal held the break clause was not expressed to be conditional on Global having observed and performed covenants in the lease, including any repairing obligations. The court believed that the fact the break clause made no mention of repair or condition indicated it was not concerned with such matters. What is clear from the judgment of Lord Justice Newey is that a tenant wishing to exercise a break clause has to comply with any conditions which have been attached to the exercise of the clause, but it does not follow that the conditions should be interpreted so as to favour the landlord.

The Court of Appeal therefore overturned the decision of the High Court.

We are experienced in drafting, negotiating and advising on the terms and provisions of a lease. If you require guidance in this respect, or more generally, please contact one of our specialist solicitors in our Leeds, Sheffield or York offices.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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