Tenancy Agreements: Are You Wanting to Exercise a Break Clause?
Commercial solicitors often have to consider the practical aspects for a business tenant who may wish to implement the break-clause in their tenancy lease.
Using the clause in favour of the business tenant of a tenancy agreements is generally considered to be a legal nightmare. The Courts tend to decide each case on the particular merits and available facts. However, it is ultimately down to the Tenant who wants to exercise a break clause to do so properly and in accordance with the precise terms set down in their lease.
This helpful checklist highlights the main factors that a business tenant, should look at when using a break clause.
The break clause - what is it?
1. A break clause can be included in a fixed-term lease allowing either the Tenant (or sometimes the Tenant's landlord) to terminate the lease early.
2. Using the break clause brings the lease to an end. However, where the landlord breaks the lease, there is legislation in place that may allow the Tenant's business to remain in the property after the lease has ended.
3. A break clause may only be exercised if any conditions attached to it have been satisfied (for example, providing vacant possession). A break clause will be strictly construed by the courts and any conditions must be strictly performed.
4. Depending on how the Tenant's lease has been written, the right to break the lease may arise on one or more specified dates, or it may be exercisable at any time during the term of the lease on a rolling basis.
The tenant must consider the following 8 issues when exercising the break clause:
1. Once a break notice has been served it cannot be withdrawn unilaterally, so the Tenant must be certain that they intend to break the lease.
2. The Tenant must comply with all the relevant requirements in the break clause and keep evidence of their compliance to help protect their position.
3. The Tenant should ensure that it serves the break notice in good time and strictly in accordance with the terms of the lease.
4. Keep evidence of the method of posting or delivery of the notice. If there are no service provisions in the lease, the Tenant could request that their landlord acknowledges receipt.
5. If the notice is being served by an agent, make sure the Tenant's landlord is aware of the existence of the agency and its authority.
6. Pay any outstanding sums due, even if these are in dispute. Payment can be made on a "without prejudice" basis and the matter disputed later.
7. If the Tenant agrees to carry out works to the property before the break date, be careful to ensure that the works are completed and vacant possession is given by the break date.
8. Ask the Tenant's landlord for confirmation of the steps the Tenant need to take to comply with any conditions. The Tenant could ask their landlord to prepare a schedule of dilapidations in relation to any repair works. A schedule of dilapidations is a list of items that are in need of repair and which the Tenant have responsibility for, due to the repairing obligations under a lease.
If you are considering exercising a break clause in your lease, it is critical that you obtain legal assistance to ensure you are not penalised in any way and avoid common pitfalls.
Using the clause in favour of the business tenant of a tenancy agreements is generally considered to be a legal nightmare. The Courts tend to decide each case on the particular merits and available facts. However, it is ultimately down to the Tenant who wants to exercise a break clause to do so properly and in accordance with the precise terms set down in their lease.
This helpful checklist highlights the main factors that a business tenant, should look at when using a break clause.
The break clause - what is it?
1. A break clause can be included in a fixed-term lease allowing either the Tenant (or sometimes the Tenant's landlord) to terminate the lease early.
2. Using the break clause brings the lease to an end. However, where the landlord breaks the lease, there is legislation in place that may allow the Tenant's business to remain in the property after the lease has ended.
3. A break clause may only be exercised if any conditions attached to it have been satisfied (for example, providing vacant possession). A break clause will be strictly construed by the courts and any conditions must be strictly performed.
4. Depending on how the Tenant's lease has been written, the right to break the lease may arise on one or more specified dates, or it may be exercisable at any time during the term of the lease on a rolling basis.
The tenant must consider the following 8 issues when exercising the break clause:
1. Once a break notice has been served it cannot be withdrawn unilaterally, so the Tenant must be certain that they intend to break the lease.
2. The Tenant must comply with all the relevant requirements in the break clause and keep evidence of their compliance to help protect their position.
3. The Tenant should ensure that it serves the break notice in good time and strictly in accordance with the terms of the lease.
4. Keep evidence of the method of posting or delivery of the notice. If there are no service provisions in the lease, the Tenant could request that their landlord acknowledges receipt.
5. If the notice is being served by an agent, make sure the Tenant's landlord is aware of the existence of the agency and its authority.
6. Pay any outstanding sums due, even if these are in dispute. Payment can be made on a "without prejudice" basis and the matter disputed later.
7. If the Tenant agrees to carry out works to the property before the break date, be careful to ensure that the works are completed and vacant possession is given by the break date.
8. Ask the Tenant's landlord for confirmation of the steps the Tenant need to take to comply with any conditions. The Tenant could ask their landlord to prepare a schedule of dilapidations in relation to any repair works. A schedule of dilapidations is a list of items that are in need of repair and which the Tenant have responsibility for, due to the repairing obligations under a lease.
If you are considering exercising a break clause in your lease, it is critical that you obtain legal assistance to ensure you are not penalised in any way and avoid common pitfalls.