13th August 2018 | Michael Lewis | Real Estate Litigation, Landlord, Real Estate
Break clause can greatly assist with a tenant’s portfolio management. It is a potential opportunity for the tenant to relocate to cheaper premises or renegotiate new terms and can be a valuable provision, particularly in this volatile market. However, it... Read more
Break clause can greatly assist with a tenant’s portfolio management. It is a potential opportunity for the tenant to relocate to cheaper premises or renegotiate new terms and can be a valuable provision, particularly in this volatile market.
However, it is not an entirely straightforward process and there can be various conditions attached to break clauses which can be difficult to satisfy.
Ideally, you will only want one condition, that is, a condition of service of notice to break – this is often 6 months’ notice but sometimes it can be 12.
A condition with any uncertainty such as vacant possession should be avoided at all costs – every property lawyer knows the sack of coal story (more on this in a future article!)
Most break provisions do not specify a certain form of notice but some do and the tenant must comply with the terms. If no specific form of notice is mentioned, notice must be clear regarding who it is directed to, which provision it relates to and what it is intended to do.
It must be served by the date specified in the break clause and served on the right party at the correct address. The party is usually the landlord but for the avoidance of any doubt, it is usually advisable to serve a copy of the notice on the landlord’s agents and solicitors to cover all bases.
All other terms of the break must be fully complied with (e.g. paying outstanding rent by the break date) in order to have a realistic chance of breaking. The break clause should specify whether the conditions must be satisfied at the date of service of the break notice or at the break date, or both.
If there is a condition, for example, that all rents are paid, it is important to determine how the lease defines rent. If the lease provides for default interest on late rent payments, and the tenant had sometimes paid rent late, although the landlord had never demanded this interest during the tenancy, the landlord can resist the break clause by highlighting the interest “technically” due.
Seeking advice from us early on is essential to manage the process successfully, making sure the notice is properly drafted and served and that the tenant fully understands their obligations. Where there is an obligation to deal with dilapidations, an independent surveyor should also sign off works as being compliant before the break date.
When advising tenants, we always push hard to get written confirmation from the landlord that the break has been waived.
Contact Mike for more information.