The pitfalls of breaking the lease on an office

21/11/2007

I am the director of a London-based company that needs to relocate its premises urgently to Bristol. However, the offices that we lease have a tenant-only conditional break, effective in 18 months' time. What should I do?

Conditional break clauses are extremely difficult to activate effectively and with certainty. For this reason, it is always preferable to agree either an unconditional break or a conditional break with which the tenant is certain that it will be able to comply. There has been a lot of recent case law on this topic.

For real certainty and to enable you to move to Bristol with confidence, you should attempt to effect a surrender of the lease with your landlord. Alternatively, a small premium might be payable. However, the surrender would give certainty for both parties, which is always an attraction.

The difficulties with conditional break clauses fall, really, into two categories. The first is the service of the notice, which is an issue whether or not the break clause is conditional. The second is, of course, the conditionality of the break clause and whether the tenant has complied with those conditions by the break date.

In relation to serving a break notice, the tenant must ensure that it is served on its landlord, not an agent or an ex-landlord, and is served in accordance with the mechanism contained in the lease. If a party has contracted to serve a notice by a certain method in a lease then courts will normally insist that that method is used.

Regardless of the terms of the lease the notice will need to be in writing, served in accordance with the terms of the lease and served in time. Often break notices need to be served at least six months before the break date. Sending a notice five-and-a-half months before the break date is not, therefore, serving a valid notice.

The second issue is that of complying with the conditions contained in a break clause. Often tenants are able to negotiate break clauses so that they are conditional only upon paying sums reserved as rent under the terms of their lease. Smart lawyers will also require their tenant clients to pay rent only "when demanded". It should be a fairly straightforward procedure for a tenant to receive rent demands and pay them prior to the break date thereby ensuring compliance with the pre-condition. Tenants should of course check the terms of their lease. Very often service charge, insurance premiums, interest and costs are recoverable as rent and these sums would also need to be paid for compliance.

Alison Mould, Partner, Fladgate LLP (