Business lease break clauses – operate with care to avoid disappointment
A business lease break clause can allow tenants or landlords to end their lease early. This can be useful for a tenant as it allows them to step out of the lease if their business fails to thrive while it can give a landlord the option of ending a lease if a stronger tenant comes along or they need the premises back for other reasons.
However, great care is needed to operate the break. Courts have repeatedly interpreted break clauses very strictly – if any conditions are not met, the right to end the lease early may be lost. If, for example, the break clause stipulates the tenant must give vacant possession on the lease end-date but the tenant fails to comply with this condition, remaining in the property or leaving any belongings on the premises after that date, the lease will continue.
If you are considering exercising a business lease break clause you would be wise to seek professional legal advice – in the meantime, here are a few points to take into consideration. Firstly, it is important to understand that once a notice exercising the break clause has been served it cannot be withdrawn, so as a tenant you should be absolutely certain you want to step out of your lease before serving notice, and ensure you keep evidence to prove you have complied with all the required conditions.
You should serve your notice in good time and strictly in accordance with the terms of the lease – be sure to keep dated proof of posting or delivery – and if there are two or more tenants, the notice must be served by all of them. Pay any outstanding sums including interest, even if these are in dispute – payment can be made on a ‘without prejudice’ basis and discussed later – and do not assume you are only liable until the break date for an apportioned part of any sums due under the lease.
If as a tenant you have agreed to carry out any work on the property ensure that this is completed in good time and give prompt vacant possession, remembering to comply with any general end-of-lease obligations that apply such as signage removal, reinstatement, redecoration or repairs.
Robert Enticott. Partner, Commercial Property departmentBusiness, Commercial Property, General, George Ide, News