Break Clauses in Commercial Leases

Commercial Landlords and Tenants should take prompt professional advice when lease breaks are due. Recent judgements by the courts have cost Tenants hundreds of thousands of pounds.

Whether you are a Landlord or Tenant you will need to ensure that you have covered all the relevant steps when you are considering ending a lease early under a break clause.

A break clause in a lease generally allows the tenant to end the lease before end of the term, however some lease also contain mutual breaks which also allows the Landlord to end the lease early, these will usually be subject to meeting certain conditions to end the lease in accordance with the requirements in the lease.

Tenants checklist:

Prior to serving any notice you must carefully read the break clause in your lease and consider the terms and conditions very carefully to ensure that you comply with any conditions for serving the notice.

Early advice in regard to any lease event is crucial and advice up to three years in advance of a lease expiry or a break clause can ensure that any potential opportunities or issues are dealt with well in advance. It may be possible to renegotiate the terms of a lease ahead of a break clause. A landlord will be aware of the risk attached to a break or lease expiry and may be willing to enter into early negotiations, maybe offering reduced rent in return for the removal of a break clause or a lease extension.”

A break clause will usually specify the time in which the notice should be given. You must serve the notice at the correct time – usually six months before the date but check to be sure. You must comply with the terms of the lease and all your rent, other payments and repair obligations must be up to date. Failure to comply with the terms of the lease may give the landlord the opportunity to contest the break clause.

Landlords checklist:

It is important to check immediately that the tenant has complied with any conditions and notice periods on receipt of the notice of the break. You can then ensure the rules of the break clause are correctly followed.

Check that all terms and conditions of the lease have been complied with and all rents are paid and up to date before you accept the break clause notice. If the lease break is unconditional and your tenant wishes to break from the lease then make sure the tenant gives back possession of the property on the break date.

Getting it Wrong – Significant penalties for commercial tenants:

Recent judgements in the courts have ruled that a commercial tenants break was invalid, and they remained liable for the remainder of the lease term and a £190,000 a year rent after failing to activate the break clause correctly. The tenant didn’t realise that the break notice was invalid as they had not complied with the terms of the lease and paid the full quarter rent due.

In another case a logistics company lost the ability to break a lease when work on dilapidations ran over past the break date without the landlord’s permission. Both cases cost the tenant a substantial amount of money.

Potential for substantial costs savings:

At Roger Hannah we have a dedicated Lease Advisory Team regularly advising clients on opportunities to help save substantial amounts of money.

We are currently working with a number of large property-occupying clients and have successfully delivered savings to them. These include lease restructuring projects and negotiating better terms and rent free periods in exchange for extended lease commitments.

For example, we recently advised a client who occupies 2 floors of a large office block in London where a lease break is due on Christmas Day 2020. We successfully negotiated with the landlord a re-gear of the lease in exchange for the tenant waving his right to break we negotiated a saving in the rent of £250,000.

Our Team can help with rent reviews, lease renewals, restructuring/re-gearing or surrender/assignment of leases, and sub-lettings as well as general advice on all lease related matters and Landlord and Tenant issues or disputes.

For further advice please contact Mark Keirl – markkeirl@roger-hannah.co.uk | 07764158233 | 0161 429 1663 or Demetri Papaioannou – demetrip@roger-hannah.co.uk | 07718587354 | 0161 641 8659