Contractual notices in a commercial lease in England & Wales, such as break notices, often appear relatively simple. Yet the courts are littered with landlords and tenants disputing the validity of conditional breaks – grappling with when the correct break date is, or whether rent can be apportioned, or if leaving the partition wall in situ means a tenant has or hasn't given vacant possession – highlighting how easy it can be for things to go awry.
For commercial tenants, here's our top ten tips for when breaking your lease:
1. Is ending the lease early actually desired?
Once served, you cannot withdraw the break notice. Once it is done, it's done – there is no going back. The parties might choose to do something differently by negotiation, but that attracts its own risks and unintended consequences, such as the possibility of a new lease coming into existence.
2. Is it possible to operate the break?
Just because there is a break right in the lease does not automatically mean that it can be operated by the current parties. The clause may be drafted so that only a certain party can bring the lease to an end early. Also, check the lease for any "contracting out" of the Landlord and Tenant Act 1954. Operating the break might also require further notices/notice requirements for statutory compliance with the 1954 Act.
3. Calculating the correct break date
A lease may specify an exact date that the lease can end on, but often it is calculated by reference to a period of time – such as a number of years. Care should be taken where the break date requires calculation, as it very much relies on the way the lease 'term' is constructed.
4. Serving the break notice
A notice sent by the wrong party and/or to the wrong party will invalidate it, so ensure that you have the correct names and details of the party you are serving (and as above you have the right to serve it). Referring to a previous tenant, or failing to address the notice to the immediate landlord, may render the notice invalid. Careful consideration should also be given to the service provisions in the lease detailing the method and place of service – a failure to serve at a specified address in a specified manner may also invalidate the notice.
5. Satisfying the conditions
It is not unusual for a lease to stipulate conditions which must be satisfied to break the lease. It is imperative to be certain of what needs to be undertaken in order to fulfil such conditions; failure to do so will render the break ineffective.
6. Payment of rent and other sums
As a tenant, ensure that what you are obliged to pay and what you have paid leaves nobody in question about compliance. Unless the lease expressly states that rent can be apportioned up to a break, it would be wise to pay the rent due for the full period. Again, unless the lease expressly entitles you to a refund, you will not be entitled to one. Check the position on interest on any arrears, insurance, etc. Even a minor sum unpaid, for example £130, might render the break ineffective. If possible, agree in advance with your landlord what must be paid and by when.
7. Time is of the essence
Time often feels short for tenants when the clock is running down to a break date. If it is a condition of the break to give vacant possession or if there are issues of disrepair/reinstatement to be dealt with, ensure you are looking at how to comply with these conditions at least 12-18 months in advance of a break date.
8. Options when the break clause is ambiguous
The drafting of break clauses might be ambiguous or stated by reference to other terms in the lease – for example yield up provisions or reinstatement. If you are unclear you should engage early with your landlord about compliance. Remember, the onus is on you as the tenant to comply – the landlord is not obliged to assist you (although a responsible one ought to). Where clarity is not given by your landlord, you have a right to apply to the court for a declaration confirming what must be done, or that what you have done, complies.
9. Is ending the lease early cost-effective?
Ensure that you have considered those "hidden" charges, rather than just headline rent rates. Alternative space that's smaller or cheaper may be an attractive proposition for breaking your current lease. However, liabilities such as dilapidations will be due on a break, potentially resulting in two overall liabilities during say a 10 or 15 year period, when only one would have fallen due if you didn't break. Also, if you've invested in the premises, say with a bespoke fit-out specific to your business needs, then again you might lose the benefit of that and have to repeat it in new premises. Relocating is typically expensive and takes time.
10. Seek advice
Obtain advice from professional advisors such as a building surveyor and a solicitor as early as possible. Early legal advice on break conditions, 1954 Act compliance, service of notices etc. could save much anguish (and cost) later on.
This list is, by no means, exhaustive - there are a number of additional matters to consider ensuring a break notice is effective. Failure to properly serve a break notice on the correct date in the correct manner and then comply with any conditions will be fatal, resulting in the lease continuing until the contractual term ends.
If you are a tenant looking to break your lease or you are a landlord who has received a tenant break notice, or you have any concerns or questions about the matters raised in this blog, please do not hesitate to get in touch with our Real Estates Disputes team or your usual Brodies' contact.
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