Avoiding Break Clause Malfunction?

A break option is a golden parachute for tenants looking to eject from a lease or renegotiate terms in tough economic times.

Commercial property solicitor warns that landlords will strive to deny tenants the opportunity to end leases (and rental streams) early and the courts continue to apply strict rules of interpretation to break provisions.

Kate has these tips to ensure breaks are deployed correctly to avoid being tied in for longer than expected!

Time flies and there is no turning back the clock
Time is of the essence in respect of deadlines set by break clauses and calculating the break date will influence the timings for service of the all important break notice and compliance with pre-conditions.
Many break options specify a strict 6 month window of opportunity so tenants should review leases early to avoid missing key dates.

Tenants should also note that once served, a break notice cannot be unilaterally withdrawn. So, don’t pull the cord too early as the landlord can hold you to your notice once served.

A case of mistaken identity can be costly
The identity of both the tenant and the landlord must be checked and unambiguously reflected in any break notice and its service.

Uncertainty often surrounds personal break options which require careful thought, at the time of their negotiation and at the exercise of the notice. A personal break option in favour of the original tenant cannot be operated by that original tenant once they have assigned their interest in the lease.
Service you can rely on

The lease must be scrutinised as a whole for any provisions prescribing the forms of notice and procedure for service required. These provisions may not be in the same part of the lease as the break option but overlooking them can have severe consequences.
A recent case involved a lease which stated that a notice given by fax was only deemed to be served on acknowledgment of receipt being given by the landlord. The fax was sent by the tenant within the break option time limits but the acknowledgment was not given by the landlord in time. So, the notice was ineffective.

Pre-empt your pre-conditions
The best course of action for tenants is to avoid agreeing to pre-conditions in the first instance during the lease negotiation but landlords may insist on them. Once the break is subject to preconditions, they must be strictly adhered to.

Tenants should keep evidence of compliance with covenants (e.g. decoration) where possible and ensure that all sums due are paid, even if they are disputed or relating to a period after the break date.
The landlord could also be approached to negotiate what is required via a schedule of dilapidations or settling on an agreed amount of liquidated damages relating to outstanding breaches. Any waiver of pre-conditions by the landlord should be clearly given in writing and not expressed to be without prejudice.

For further information please contact Kate Mallaband on 01524 846846