Break Clauses – Advice and Guidance for Landlords & Tenants
The lockdown and its associated restrictions have had a substantial impact on the economy and continue to do so. More tenants are unable to afford the rent for their commercial properties in the long term. Landlords are looking to let to more reliable tenants or choosing to use their commercial properties for alternative purposes, prompting a rise in the use of break clauses.
In this article Katie Briggs, Associate Solicitor in the Property Litigation Team at Wilkes looks at Break Clauses and some of the common factors both landlords and tenants should consider before serving one.
One of the main ways to end a commercial lease early is to exercise the break option. Break Clauses in commercial leases are extremely common. However, break notices can be a complex area of law, so it is vital to ensure they are correctly drafted and served. It is also important that you are aware of any conditions to ensure that the break is exercised correctly, the most common ones being the tenant giving up occupation and ensuring rent payments are up-to-date.
Case law has demonstrated that failing to adhere to covenants in the lease could deem the exercise of the break ineffective. Examples include the tenant’s failure to paint the property in the last year of the term (Bairstow Eves (Securities) Ltd v Ripley) and the tenant’s failure to provide vacant possession after removing the landlord’s fixtures and fittings (Capitol Park Leeds PLC v Global Radio Services Limited ).
It is important for the tenant to be advised of his requirements under the lease to validly exercise the break clause and to ensure these are done before the break date. Failure to do so may render the break notice invalid. It is equally important for the landlord to be aware of these requirements to ensure the tenant meets these or the landlord could dispute the validity of the break option.
The first step is to review the lease. If there is a break clause, the relevant provisions need to be carefully reviewed and understood. Not only is this necessary to comprehend the conditions required in exercising the break but it is also necessary to determine the deadline to serve the notice, who it must be served on and how it must be served.
It is important to ensure the notice is served on the correct people, using the correct method of service and in accordance with the break clause. An incorrectly served break notice may be deemed invalid. If there are managing agents for the property, it may also be worthwhile serving a copy on them, however this is to be done in addition to serving a copy on the landlord as opposed to in place of.
It is strongly advised to take independent legal advice upon receipt of a break notice. Not only is this important to determine whether the notice is valid but it can also be important to understand the implications of the break notice, both legally and practically. It will also prove beneficial if you wish to contest the notice and allows you to obtain advice in relation to not compromising your legal position.
Landlords and tenants should note that ending the lease does not prevent claims for failure to repair (dilapidations). You can read more on the topic of dilapidations here.
Whether you are the commercial landlord or the commercial tenant and whether you wish to serve a break notice or have received a break notice, The Property Litigation Team at The Wilkes Partnership Solicitors are able to assist you on all matters relating to break notices.