Break Clauses - Four Important Things Tenants Should Be Aware Of

• Rent and other sums due under the lease must be paid up to the break date, even if not demanded by the landlord. “Other sums” will include service charge, insurance rent and default interest.  
• Time is of the essence when it comes to serving break notices. The lease terms stipulating when the notice is to be served must be strictly adhered to, otherwise notice risks being invalidated. Mistakes are often made on this.
• The tenant must have complied with its other covenants in the lease, such as those relating to repair and decoration. In one case, the tenant’s break notice was invalid, because it had redecorated a few weeks before it was obliged to under the lease. It is on these sorts of small technicalities that attempts to exercise break options fail. 
• Vacant possession of the premises must be given on the break date.  Failure to do so potentially invalidates the exercise of the break option and the tenant then remains on the hook for the residue of the term. However, the meaning of vacant possession is not always clear cut and the tenant would be well advised to take legal advice as to what vacant possession means in the context of its particular lease and circumstances.

Practical tips

1. If the lease requires it as a precondition to breaking the lease, pay the full quarter’s rent and any outstanding sums due. Take legal advice if any sums are in dispute, or the break date falls during a rental period.
2. Consider carefully what other preconditions there are to exercising the break, particularly in the context of COVID-19. If vacant possession and delivering up the premises in repair and decoration are required, can this be practically achieved in the context of the Lockdown? 
3. Check for evidence of previous late payments and whether default interest may be due on them. If so, include a sum to cover such interest.
4. Consider instructing a surveyor to advise on what repairs need to be carried out prior to exercising the break option, to ensure compliance with repair covenants.
5. Carefully check the lease provisions as to how the notice must be served and take legal advice, if in doubt. Keep documentary evidence of service of the notice.

Finally...

As detailed above, this apparently simple exercise has many potential pitfalls for tenants. Taking a small amount of legal advice could avert a significant and costly mistake. If you require any legal advice for business finance, please visit www.lawbite.co.uk. LawBite is an on-line platform that seamlessly connects businesses to expert legal help that is clearer and more affordable, usually 50% lower than from comparable services. We offer a 15 minute free consultation for business legal advice. LawBite continues to issue advice on the impact of Covid-19 on businesses. Nothing in this article constitutes legal advice on which you should rely. The article is provided for general information purposes only. Professional legal advice should always be sought before taking any action relating to or relying on the content of this article. Our Platform Terms of Use apply to this article.  For further business legal advice, please enter an enquiry or call us today on 020 38088314 to speak to a member of our friendly Client Care Team.

The author of this blog post is commercial property lawyer Philippa Cobb. Philippa worked for many years in London in private practice, advising a variety of SMEs in relation to their commercial property interests, as well as acting for property developers and investors. Following a relocation to Exeter, she then enjoyed an in-house legal role for 10 years with the University of Exeter, advising on a broad range of real estate matters.