Author: Gavin Whitney
A right to break in a lease is often something that is fiercely fought over at heads of terms stage. If the tenant successfully obtains such a right, it should be cherished, since it provides a hugely beneficial flexibility that could be crucial in the future.
This flexibility can be useful as a negotiating point, forcing a landlord to consider offering a re-gear or other incentive to prevent the tenant from moving premises as the break date comes around. Or it can of course provide for a convenient exit strategy from a property that is no longer needed, too expensive or not performing as expected.
However, having won the break right in negotiations and decided that it should be exercised, it’s important that the tenant does not end up losing the ability to walk away from its lease because it does not properly exercise the break.
The first thing to do is to plan ahead; a tenant can never start planning too early. Consulting internally with the relevant stakeholders and then with the tenant’s legal advisers and surveyors is going to be necessary when considering whether or not to exercise and, once a decision is made to do so, on the implications of that decision. That all takes time and so the more a tenant has, the better.
The provisions of the lease must of course be reviewed in detail. The break date and the date by which effective service of the notice on the landlord must be achieved are absolutely critical; get these wrong, and it’s all over. It’s important to diarise these so that there is no way they can be forgotten or missed.
There may be other conditions attached to exercise of the break and these must be complied with to the letter, as even purely technical breaches could have the effect of rendering the break ineffective. So, as a judge memorably said in one case: “If the notice clause had said that the notice had to be on blue paper, it would be no good serving the notice on pink paper however clear it might have been that the tenant wanted to terminate the lease”.
Once the notice is validly served, then that of course is not the end of the matter and, again, planning is crucial to ensure everything goes smoothly. There will likely be conditions requiring the tenant to:
As with other conditions, these must be complied with strictly. Therefore, it is vital that all rents are paid up to date and that, crucially, rents are not apportioned up to the break date unless the break clause specifically provides for this. This is the case even if the landlord only demands apportioned rents for the final quarter of the lease. Tenants must also check which other sums are reserved as rent since even small amounts of, for example, interest (£130 in a recent case) could be enough to invalidate a break . So efforts should be made to extract confirmation from the landlord that there are no arrears of rents.
If there is a subtenant, they must vacate before the break date and all furniture and the tenant’s possessions and rubbish must be removed to ensure that vacant possession is given. Time must be allowed to terminate the subtenant’s lease and to ensure that they have properly vacated well before the break date comes around. Alterations to the premises may have to be removed and reinstated before the end of the term and this may take some time to do.
In some leases, there may even be a break condition requiring the tenant to have complied with all tenant covenants. This may sound innocuous but it is nigh-on impossible to do in a lease with, for example, a full repairing obligation where there will always be an element of disrepair. At best, this could result in arguments with the landlord as to whether or not the break was successfully operated. At worst, it can result in the break being ineffective. This kind of uncertainty is far from ideal for either party and so by taking early action to address these issues, the risks of failure to exercise the break are reduced.
So, in summary, if you have a break option in your lease: plan ahead, seek advice and (where possible) engage with your landlord to ensure that it is successfully operated.