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Back to Basics – Option to renew and option to determine

In 1924 the High Court held that an option to renew had to give way to an break clause which contain an option to determine a tenancy. This case appears to reflect the current state of the law.

In Stewart v Massett, a lease was granted for a term of 21 years from 25 March 1910. The lease contained a break clause which allowed either party to provide 6 months’ notice prior to the 7 or 14 year anniversary. If that notice was provided then the lease would end on the 7 or 14 year anniversary. Rather unusually, the lease also contained an option to renew which the tenant could exercise upon giving 6 months’ notice prior to the expiry of the original 21 year term. Such a renewed tenancy would commence on the 25 March 1931.

On 20 August 1923, the tenant exercised his right to renew his lease for a further 7 years. On 23 August 1923 the landlord exercised his right to determine the tenancy as from 25 March 1924. The landlord then applied to the court for a declaration that the lease had indeed been determined on 25 March 1924 in accordance with his notice, despite the tenant’s notice to renew.

The court decided that the option to renew was subject to the option to determine and it would not be a reasonable construction that on the landlord’s notice the tenant still had the right to a further lease. Therefore, the break notice overrode the tenant’s attempt to exercise their option to renew and the lease was determined.

It is not uncommon for leases to have an option to renew and a break clause. This case suggests that if there are both the break clause will override the option to renew. However, this is an old case and it may be that it would not be followed today. In order to avoid the sort of confusion shown by the case above, it is recommended that both types of clause are not included in an agreement. Where the deal means that both clauses are included it should be made clear in the lease which of the break clause or the option to renew should take precedence.

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