23rd October, 2019
Tenant’s Break Clause: Pitfalls and how to avoid them
A Break Clause is a term sometimes included within a commercial lease that provides a tenant with the opportunity to end a tenancy midway through the term by serving a Break Notice on the Landlord.
Exercising a break clause is notoriously easy to get wrong and the consequences are severe. For example, if a tenant wished to exercise a break clause after 5 years of a ten year lease and failed to do it properly, they would potentially be on the hook for a further 5 years worth of rent.
Break clauses are strictly construed. Property law has developed over the centuries and gives meanings to words that would not be obvious to a modern individual. For that reason, it is important to seek legal advice long prior to beginning the process of exercising a break clause.
Below are some of the common pitfalls that tenants fall into and a few of our top tips on how to avoid them:
Don’t miss the Deadline
- Calculate the deadline to serve your Break Notice and diarise it at least 6 months in advance.
- Serve the Notice well in advance of the expiry date. If it is wrong, you have time to re-serve it.
Are there any Break Conditions?
- You might need to comply with Lease conditions before serving the Notice. Common examples include your rent being up to date, the service charge paid, there are no outstanding invoices for electricity etc.
- It is worth considering instructing a surveyor to carry out a lease compliance audit to flag any breaches before you serve the Notice.
Service of the Notice
- The lease may contain provisions as to how service should be given, make sure you follow them exactly.
You’ve served the Break Notice, it appears to have been accepted by the Landlord – you can still get it wrong:
Lease Covenants and Vacant Possession
- The Break probably won’t be effective unless you give vacant possession when you leave. Vacant Possession is a specifically defined legal term and carries specific legal meaning.
- Seek advice and understand what Vacant Possession means. It isn’t simply emptying the property of your belongings and giving the keys back.
- What are the repairing obligations? It is worth considering settling any dilapidations in advance of the break date and perhaps even agreeing a full and final settlement with the landlord.
- Is any rent payable after the Notice has been served? Pay it even if you know you will be out of the property very soon and claim it back from your Landlord after you’ve vacated.
- Your Landlord probably wants you to stay put, your rent payment is the Landlords income after all and it will undoubtedly be easier to keep you in rather than find a new tenant, they are looking for ways to invalidate the Notice
- If your Landlord asks you to agree to put a “For Lease” sign up after you’ve sent your Break Notice, it is worth seriously considering agreeing to it even if it is not a terms of the lease. Actions like this, including serving a dilapidation schedule, might be evidence to indicate that the Break has been accepted.
- Have an open dialogue with your Landlord and try to negotiate your departure. An agreement will help avoid any nasty surprises, for example a future claim for unpaid rents or dilapidations.
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