ISOLAS secures Key Judgement on Landlord and Tenant Act 1983 Break Clause

ISOLAS’ Property Litigation team, led by Partner Mark Isola KC and assisted by Partner Nicholas Isola and Trainee Solomon Kench, represented its landlord client in relation to an application by the tenant to the Supreme Court of Gibraltar for a renewal of its tenancy for the minimum prescribed term of five years under Part IV of the Landlord and Tenant Act 1983 (LTA 1983), and which was not opposed by the landlord. The landlord was seeking to insert a new term in the new tenancy, to allow it to break the new lease within that minimum prescribed period of five years and which the tenant opposed. The Supreme Court of Gibraltar determined that a break clause within the minimum prescribed term of five years should be included in the new lease.

This decision confirmed an earlier decision of the Supreme Court of Gibraltar in Amro Bank NV v Sanguinetti [1999-2000] Gib LR 326, where the tenant itself was seeking the insertion of a break clause within the minimum term of five years prescribed under the LTA 1983, and provides helpful guidance on the exercise of the Court’s discretion under the LTA 1983 as to whether to insert a landlord’s break clause as a new term.

Background

The tenant operated its business from the premises under a lease that was granted for a term of five years in 2016 and which it held over on when it expired, and subsequently continued under the LTA 1983 when notice was served by the landlord terminating the existing tenancy.

Whilst the parties agreed on the duration of the new tenancy to be granted under the LTA 1983 to be for five years and at an agreed annual rent, the central issue in dispute was whether the Supreme Court had the power to insert a landlord’s break clause to permit the landlord to determine the tenancy on 30 June 2029 on giving six months’ prior written notice, and if so, whether the Supreme Court should exercise its discretion to do so on the facts and circumstances of this case.

Legal touchpoints

The issues for the Supreme Court were:

1. whether the insertion of such a break clause contravened the requirements of s. 52 of the LTA 1983, which requires that the minimum term for a new Part IV tenancy granted by the Supreme Court under LTA 1983 should be for a minimum of five years (First Issue); and

2. if a break clause could be inserted within the minimum prescribed period of five years, whether the Supreme Court should include a new term comprising of the break clause in the new tenancy to be granted by it (Second Issue).

Judgment

On the First Issue, the Supreme Court held that the insertion of a break clause within the minimum term of five years prescribed by s. 52 of the LTA 1983 did not conflict with the requirements of s. 52 of the LTA 1983, and could be included by the Supreme Court in exercise of its powers under s. 54 of the LTA 1983. The Supreme Court decided in line with the decision in ABN Amro Bank NV that a break clause was not a term going to the duration of a tenancy. Moreover, such a break clause granted an option to terminate a tenancy, but it did not impose an obligation to do so, and if it was not exercised, then absent other relevant circumstances such as forfeiture, the tenancy could only be terminated at the end of its term.

On the Second Issue, the Supreme Court considered a two-stage test. Firstly, whether there was a real prospect of the landlord developing the premises on obtaining possession from the tenant on exercise of the break clause. Secondly, if so, whether the landlord should be permitted an opportunity to seek to redevelop the building earlier than the minimum term of five years prescribed by s. 52 of the LTA 1983, which required an assessment of what was a fair and reasonable balance of the landlord’s and tenant’s competing interests in the light of all relevant circumstances.

The Supreme Court “had no doubt that there [was] a real possibility that the premises [would] be required for reconstruction” noting in particular that (a) the landlord had purchased the premises specifically for redevelopment and to occupy it for its own business purposes; (b) planning permission for redevelopment had been granted and but for the tenant’s premises the building was vacant; and (c) the landlord had revised its plans to carry out the works in two phases, with the first phase not requiring vacant possession of the tenant’s premises, and the second phase to be undertaken once the tenant had vacated the premises.

The Supreme Court held that there were no “countervailing major facts or factors” that prevented it from ordering the insertion of a break clause. The tenant’s position was not akin to a case of “significant financial and logistical prejudice” with the tenant’s evidence indicating that its business relied on regular customers and recommendations (not walk-ins), that its precise location was not crucial to its success, and that it had considered moving to alternative premises on termination of the tenancy. Any disruption involved with such a move would not create unsurmountable difficulties.

The Supreme Court held that the facts and circumstances supported the insertion of a break clause having evaluated the parties’ competing interests so as to strike as fair and reasonable a balance between them as the circumstances permitted.

The judgment is available here: Miss Shapes Limited v Breccia Limited, 2026/GSC/022