This article originally appeared in Contract Flooring Journal.
Company fortunes vary. From growth and expansion to lower levels of business that call for cost cutting, premises requirements change over time. Where premises are leased and a business wants to move mid-term, it will need to terminate its lease using the leaseholders break right.
The requirements and obligations on tenants when exercising break rights are notorious in how they must be strictly complied with, and case law shows that no leeway will be given to a leaseholder. Terminating a lease can offer expensive traps for the unwary.
- Do remember to comply with all terms of a break clause held within the lease. The terms of the break clause will be strictly interpreted. If a clause states that the break notice must be served on pink paper, then only that will do.
- As a leaseholders you should check who has the right to terminate the lease. If your business is not the original tenant, check that you actually have the right to terminate the lease.
The break notice must be addressed to the right party and it is important that every party eligible to receive a copy of the notice does. If the landlord comprises two or more individuals or entities, the notice should be addressed to all parties and sent to the correct address.
However, recent case law has confirmed that it may be sufficient to serve a break notice on the landlord’s agent. It is therefore worthwhile sending a copy of the notice to the landlord’s agent as well.
Timing is the key
While a leaseholder may have a break clause specifying the break date, many refer to an anniversary of a date relating to the lease, for example the term commencement date.
If there is any possibility that the break clause could be interpreted in a different way, then more than one notice may need to be served to ensure a successful termination of the lease.
Leases may come with pre-conditions before a break clause can be exercised. The most common are:
Payment of rent
Leaseholders should check what is meant by ‘rent’, it may not only be the annual rent but other sums such as service charge, insurance, VAT, interest or any other amount that might be considered as rent and due to the landlord under the lease terms.
If in doubt, consult the landlord in order to avoid receiving an invoice at the last moment so making the break ineffective. Be sure on timing.
When should the payment be made? At the time of service of the notice or at the break date? If in doubt, do both. If the break payment date falls between two rent payment dates, unless stated otherwise, the full rent instalment including for the period falling after the break payment date will be due. There must be no apportionment.
Vacant possession. Again it is important that not only has the business vacated the premises but also that all fixtures, fittings and goods together with any sub-tenants and any workmen that may have been carrying out remedial work for it are no longer present. You should also hand back any keys etc. before the break date.
This is a very onerous condition that is thankfully becoming less common, following case law as it can be difficult to comply with as the obligation will be interpreted subjectively. In simple terms, material compliance requires the compliance with any obligation in a lease or else the served break notice may not be effective. Before the case, even the most trivial breach could leave this type of condition unworkable.
If a penalty payment is due the leaseholder should ensure that it is paid to the right party at the correct time. While it is sensible to seek the landlord’s acknowledgement and confirmation on such things as outstanding sums and works required to materially comply with the terms of the lease, there is no obligation on a landlord to respond.
Here the leaseholder must be proactive; if necessary checking records for any outstanding payments and any interest that may have accrued and all work that is believed to be necessary should be carried out.
Lastly, the leaseholder should ensure that they have served the notice correctly. It’s critical that the break notice is served not only in accordance with the terms of the break clause, but also the method of service contained in the lease. If in doubt, serve the break notice in various ways to ensure receipt. And obtain some form of evidence of service.