In these difficult times commercial tenants will often be looking to terminate a lease early.  The right to “break” may arise on one or more specified dates or it may be exercisable at anytime on a rolling basis.  Not all leases include a break clause and the terms can impose varying levels of compliance. If a tenant is considering exercising a break clause they must check the terms of the break clause carefully.

Both the tenant and landlord should be aware of any conditions attached to a break clause as failure to comply with the conditions may mean that the tenant loses his opportunity to terminate the lease early.  From the landlord’s point of view the failure may give the landlord the opportunity to keep a good tenant in the property for longer. 

Typical conditions include the obligation that the tenant must have paid all rent and have given up vacant possession. Often the landlord will try to incorporate additional conditions relating to the tenant’s obligation to have complied with all the lease covenants, or not being in breach of the repair covenant. When negotiating a lease the tenant should always try to resist these additional conditions, as even a minor breach can jeopardise the tenant’s ability to terminate the lease early. 

We recently advised a tenant after he fell into this trap.  The tenant had a 7-year lease with a break clause at years 3 and 5.  The break clause included a condition that the tenant had to have paid by the termination date, all the rent due up to that date.  The tenant tried to exercise the break clause at year 3, but unfortunately through a technical error the tenant did not strictly comply with this condition.  Originally, the landlord had sent an invoice addressed to the wrong party.  The tenant had asked the landlord to re-send the invoice addressed to the correct party, but failed to pay the rent due to the landlord by the termination date.  The tenant was in breach of the condition and the tenant could not terminate the lease. 

Practical advice

Tenants and indeed landlords must ensure that they do not fall into this type of trap by complying strictly with all the relevant requirements in the break clause.  They should also keep evidence of such compliance in order to protect their position. 

If in any doubt seek advice as soon as you make the decision to break if you are a tenant or as soon as a notice of a break is received if you are a landlord.

Contact

If you any questions about this issue or any issues with your leases or property matters please contact Ben Slade on 01643 707777 or by email on ben.slade@maitlandwalker.com