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27th April 2021

Break clauses – a legal quagmire

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A recent case considered whether, following an Event of Default, a landlord had validly terminated a lease by serving a break notice on its tenant.

The case, raises pertinent points for lawyers, landlords and tenants alike as to the importance of precision when drafting break clauses and how they can be easily misconstrued. Here, it was the wording that enabled the landlord to serve a break notice ‘at any time’ that proved problematic.

Haigh Hall, a large country estate in Wigan, sits within Haigh Hall Country Park. Both freeholds are owned by Wigan Borough Council (the Council), who granted a lease of Haigh Hall and some adjoining land to Scullindale Global Limited (Scullindale) for a period of 199 years.

The Council granted two planning consents, enabling Scullindale to carry out refurbishment and redevelopment works to upgrade Haigh Hall to a hotel.

Crucially, the lease contained a break clause stating that an Event of Default would be triggered if the development was not completed in accordance with the planning permissions by 23 May 2018. This entitled the Council to terminate the lease by serving a break notice on Scullindale ‘at any time’ and re-acquire Haigh Hall at market value.

Following Scullindale’s failure to complete the development in time, on 16 September 2019, the Council served notice on Scullindale, who remained in occupation of Haigh Hall. The Council asserted Scullindale was trespassing from 16 September 2019 onwards and claimed damages for trespass or mesne profits. However, these were not awarded as the Council was not perceived as having suffered any loss due to Scullindale’s continued occupation.

Scullindale filed a counterclaim (which was dismissed) contending that it was entitled to remain at Haigh Hall as a tenant and that the Council had breached the terms of the lease by invalidly exercising the break clause. Scullindale perceived the words ‘at any time’ to mean the Council could serve a break notice ‘at any reasonable time’, which it argued the Council failed to do given the lapse of time between the Event of Default and service of the break notice.

The key issue was whether the Council acted within the terms of the lease in serving the break notice. The Court considered whether a temporal limitation could be implied into the wording of the break clause. Whilst the Council considered the current wording was sufficiently clear and unambiguous, Scullindale argued that the wording unfairly permitted the Council to serve a break notice on Scullindale at any point in the remaining 197 years of the lease with just two months’ notice. The Court found a middle ground: namely, that the Council could serve the break notice ‘at any time whilst an Event of Default still persists’. Therefore, the Court found the Council’s break notice lawfully terminated the lease as the development was not complete on the date the Council served the notice.

This case reiterates the importance of ensuring the parties understand precisely what obligations any break clause imposes to avoid ambiguity. For advice on any landlord and tenant or other property related matters please contact Susanne Hinde on 01223 532728 or click here to email her.

Wigan Borough Council v Scullindale Global Limited [2021] EWHC 779 (Ch)