In these uncertain times tenants may be looking at their leases to see whether or not they have a right to terminate early.
The lease must be examined in order to ascertain whether or not there is a break right and, if there is, very careful attention must be paid to the terms of the relevant clause, time limits and as to how and where any notice may or must be served on the landlord. If all pre-requisites are not adhered to it is likely that any break notice will be ineffective and the lease will continue. This will mean that the tenant has ongoing liability for the rent and all of the tenant’s covenants under the lease – and if there is a tenant’s guarantor the guarantor’s liability will continue.
Where a break clause is included within a lease it will be specific to that lease – assumptions should not be made!
In particular, points to consider include:
- The notice period that must be given. This must be strictly adhered to. Therefore if, for example, not less than 6 months’ notice must be given, any notice which is served must reach the landlord at the correct address prior to the relevant 6 month period commencing.
- The notice must be in writing, containing a correct form of wording – almost certainly it will not be permissible to send this by fax or email.
- The current identity of the landlord must be established and if the landlord has recently changed it may be necessary to serve the notice on the previous landlord and the new landlord – due to rules relating to ownership and registration at the Land Registry.
- The notice should be sent to any addresses known for the landlord(s) including:
- Any stated in the lease for service
- Any noted at the Land Registry
- Any previously notified by the landlord and/or the landlord’s managing agents
- The landlord’s managing agent
- If the landlord is a company, the landlord’s registered office address
- The notice must be served so as to comply with any required provisions in the lease (which may be by reference to statutory provisions). These may require, for example, service by recorded delivery or service in person (which, for a company, is at its registered office address). They may require that the notice is marked for the attention of a particular person or officer. In any event, a tenant will want to ensure that there is proof of service should evidence of this be called for at a later date. The following should be borne in mind:
- If service is by recorded delivery, has the notice actually been signed for? If not has sufficient time been left to allow for another method of service, such as personal service?
- If service is personal, a careful note should be kept of the time and place of service – it may be necessary to back this up with an affidavit (oath) relating to service
- Any pre-conditions must be complied with. These may include:
- making a penalty payment which may be payable when the notice is served or on or before the break date – and the lease may specifically state how this should be paid and where this should be paid to
- Ensuring that conditions are complied with on or before the relevant break date, which may include:
- Payment of all annual rent due – not just to the break date but for the whole of the relevant rental period within which the break date occurs
- Payment of any sums due, such as insurance premiums and/or service charges
- Giving up vacant possession to the landlord on the break date and handing back the keys – which will mean not just vacating and ensuring that all occupiers have vacated (and that there any no subsisting sub-occupancy arrangements) but also ensuring that all plant and machinery and tenant’s fixtures and fittings have been removed (unless the lease specifies otherwise)
- Re-instatement – taking out any alterations made by the tenant and making good (unless the lease or any licence for alterations specify otherwise) – this may require consents such as building regulations consents and/or if the building is listed, listed buildings consent
- Making good any default in repair or decoration – it may be difficult to prove compliance with a condition such as this
- Is the break date under the lease clear? It may be prudent simply to repeat the wording in the break clause rather than specify an actual date.
- Once given, a break notice cannot be revoked – if the parties decide to continue a tenancy arrangement this must then be under a new lease.
- The tenant should also bear in mind that the landlord may serve a terminal notice of dilapidations in respect of repair and/or decoration and factor in the potential cost of this.
We strongly advise you to engage an appropriately qualified and experienced lawyer to draft and serve any break notice, so as to ensure that it is properly dealt with
If you would like to speak to someone in our Commercial Real Estate team please call 01256 320555 or email firstname.lastname@example.org.