RESOURCES | Break clause tips for landlords
Hannah Al-Shaghana of Slater Heelis writes:
Break clauses are increasingly being used in commercial leases to allow tenants to exit premises earlier than the termination date in the lease.
However, break clauses shouldn’t be seen as an exclusive tool for tenants; landlords can also benefit from a break clause allowing them to end a tenant’s lease early.
If you are a landlord and considering the inclusion of a landlord break clause in a new lease, or you are thinking about exercising a landlord break clause in an existing lease, here are seven tips to bear in mind:
- Who can break? – Check the provisions of the lease. Is the landlord break personal to the original landlord? If so, and you have purchased the landlord’s freehold property, you lose the right to break.
- Who is the landlord? – This may sound like an obvious question. However, occasionally break notices stipulate the incorrect landlord. Is the landlord comprised of two co-owners? If so (unless the lease says otherwise) the notice needs to be expressed to be served on behalf of the joint landlord. Is the property held in a trust? If so, ensure the beneficial interest is referred to in the notice and establish which trustees have the right to serve the notice on behalf of the trust. The lease should stipulate these details.
- Who is the tenant? – As landlord you must ensure you serve the notice against the current registered proprietor. Has the lease been recently lawfully assigned and registered? If so, the break notice will need to be served on the new assignee (i.e. new tenant). Remember the tenant may be different from the person or entity who pays the rent.
- Any pre-conditions? – There may be pre- conditions that a landlord needs to satisfy in order to exercise a break. Check what conditions there are and ensure that they are strictly complied with.
- Is there a sublease in place? – Beware – by breaking a headlease correctly, any current subleases will automatically fall away too (although a subtenant might be able to request a new lease, depending on the type of sublease in place). If the landlord would like to keep the subtenant under its current sublease, you may want to negotiate with the head tenant about entering into a mutual surrender rather then terminating the lease pursuant to a break clause. By virtue of a mutual surrender, all existing subleases stay in tact.
- Notice provisions – Check the lease for confirmation as to how the notice should be served and when it will be deemed to have been received. Allow time for any notice period and, if possible, obtain acknowledgement of receipt.
- Practicalities – Provided you have exercised the landlord break correctly, you may want to consider a formal handover with the tenant or their agent on the break date. You will need to review the repair and yield up provisions in the lease and perhaps consider serving a terminal dilapidations schedule to deal with any disrepair issues.
An experienced commercial property solicitor is vital to help you navigate your way through your lease and ensure you comply with the break clause conditions.
There is a vast amount of case law surrounding break clauses and I would be happy to help you in the preparation or exercise of any break clauses.
For more information, call me on 0161 672 1426 or email hannah.al-shaghana@slaterheelis.co.uk
This article was originally published on Place Resources.
