So you think you have a right to break your lease?
We are seeing many cases where landlords are scrutinising break notices and break clauses even more carefully than they otherwise might have. With difficult times upon us, the landlord/tenant relationship is under a lot of pressure and, due to the prospect of potential loss of income, landlords are showing increased resistance to tenants who are seeking to exercise their break clauses.
Of particular note are break clauses that contain conditions, as even a minor breach of a condition could prove to be disastrous for the tenant.
We highlight some of the most common problems that tenants are facing and the important points to consider/check if you are thinking about breaking your lease.
Service of the break notice
Serving a break notice is not always straightforward. There may be clauses in your lease that impact strictly on how the break notice should be served. For example, in a recent case the lease contained a clause stating that any notice given under the lease should be served upon an additional party as well as the landlord. Unfortunately, this was overlooked and the break was therefore deemed to be invalid.
Before serving a break notice, the following should be carefully checked:
(a) the break date and the amount of notice that should be given prior to it;
(b) the form and content of the break notice;
(c) the identity of the person entitled to serve and also receive the notice; if there is any doubt about the
proper person to be served, the break notice should be served on all possible candidates;
(d) the address or location to which the notice must be served;
(e) the appropriate manner in which the notice is to be served; and
(f) the existence of any conditions for service which need to be fulfilled.
As a landlord, before acknowledging receipt of a break notice, the following should be considered:
(a) was the notice served in time and in the correct manner?
(b) are the correct parties named in the notice?
(c) are there any other apparent defects in the notice?
Complying with conditions
It is vital to check exactly what conditions must be complied with and also the date on which compliance with each is required. Most break clauses provide for compliance on the break date itself, but occasionally a clause will require compliance as at the date on which the break notice is served, or even throughout the entire length of the lease.
We set out below some of the most common conditions that are attached to a break clause.
(a) Compliance with tenant covenants
The important points to note are:
- Any breach of a covenant is a breach no matter how trivial it is. For example, a lease required the property to be painted in the last year of the term whereas it had in fact been painted just before the beginning of the last year. The court held that the condition had not been complied with, even despite the fact that the premises were in good decorative repair at the break date.
- If a condition specifies that ‘material’ compliance is required then this will assist a tenant slightly as compliance should be assessed by reference to whether or not the premises can be re-let without additional delay or expense. However, the word ‘material’ is subjective and as such is open to interpretation and thus uncertainty.
(b) Payment of all rent and other sums
This is a point that has caused a lot of problems recently, especially where the break date falls part of the way through a rent period or on the same day as a rent payment date.
Unless there is an express provision in the break clause providing that the rent is to be apportioned, rent would be due for the entire rent period within which the break date falls. It is therefore advisable to take a cautious approach and pay the full rent for the applicable rent period to avoid the risk of invalidating the break.
It should also be noted that, unless the lease contains express wording that requires the landlord to repay any rent in respect of any period following the break date, the landlord is entitled to retain the full rent paid.
Given the pressures that landlords are facing at present, we feel that claims in relation to this area may become more common, but there are arguments that might be able to be put forward by tenants to defend a claim.
(c) Vacant possession
Another common condition that causes problems is one that obliges tenants to offer up the property with vacant possession. We have seen recent cases that have highlighted the importance that tenants should place on making sure that all fixtures and fittings are removed, especially those that might substantially interfere with the physical enjoyment of the property. In addition, no party can remain in occupation, which can cause obvious difficulties where undertenants or other parties are in situ.
Recent examples of breaks being invalid include cases where large quantities of rubbish and quantities of chattels have been left at the property. It is therefore advisable that the property is left in a clean and tidy condition at the break date, with all items removed and all required reinstatement works completed, otherwise the break may be held to be invalid.
Full compliance with conditions and break notice provisions is paramount and even trivial breaches can be disastrous for a tenant. The terms of the break clause must therefore be considered carefully and acted upon very strictly if a tenant is seeking to escape a lease.
Commercial Property Newsletter - 25 March 2011