23 January 2020
Are you considering breaking up?
Break ups are hard, and often complex. The choice to exercise a break clause needs to be carefully considered as once the break has been put into effect, there is often no going back.
We deal with break clauses, and the service of break notices, on a regular basis at B P Collins, but it is often the case that clients (in particular tenants) have already served a break notice before they approach the firm for assistance.
Unfortunately, tenants often approach us for assistance once the break date has passed and having assumed the break has taken effect, the landlord has informed them that it does not accept the validity of the notice and deems that the lease, and therefore the ongoing rent liability, is continuing. The tenant faces paying rent until the end of the contractual term – often amounting to tens of thousands of pounds – and they want to establish if the break has been validly executed and if not, why.
Whilst the tenant may have options to bring the lease to an end even though the provisions of the break clause was not dealt with correctly, the option will likely involve a surrender and landlord will likely require a premium to let the tenant out of the lease.
Planning when it comes to exercising a break option in a lease is key. If you are contemplating exercising a break clause and bringing the lease to an end sooner than the expiry of the contractual term, it is advisable to speak to your solicitor as soon as possible.
Many people assume that sending a letter to the landlord notifying it of your intention to bring the lease to an end is sufficient. In many cases, it might be. However, commercial leases often include provisions that require the tenant to jump through hoops in order to be able to successfully exercise a break. When exercising a break clause, the following needs to be considered:
- Who has the ability to serve the break notice?;
- How much notice must be provided?;
- Service – how must the break notice be served in order to be effective?
- Are there any pre-conditions that need to be satisfied for the break to be effective?;
a. vacant possession;
b. satisfying all arrears;
c. payment of a premium etc;
- By when do the pre-conditions need to be satisfied – by the break date, or by the date of the service of the break clause?
It is a mistake to assume that serving a break notice is a simple task. The stakes are high and failure to serve a notice correctly can be disastrous.
Alternatively, having served the break notice, it is sometimes the case that the landlord and the tenant change their minds and want to disregard the break notice and continue with their relationship. In this circumstance, landlords and tenants often believe that they can simply tear-up the break notice and the lease will continue irrespective of the action taken. Whilst practically speaking, the tenant will continue to occupy and the landlord will continue to demand and receive rent in accordance with the terms of the lease, the reality of the situation is that legally the lease will have determined. A break notice can be withdrawn with the consent of both parties, but it will require the landlord and tenant to enter into a new lease. From the landlord’s perspective, this is critical as to continue without a new lease being granted could result in the tenant obtaining security of tenure under the Landlord and Tenant Act 1954 – a serious unintended consequence.