It may sound like the parting words of a jilted lover, but it could equally be the sound advice of a property lawyer to a tenant who has exercised the break clause in a lease, writes Bill Chandler of Hill Dickinson.
Break clauses have become commonplace in commercial leases in recent years. Over half of commercial leases more than five years in length now contain a break clause, while even a quarter of leases for less than five years are capable of being broken early by the tenant.
If the break is only exercisable on a specific fixed date, rather than being a rolling break, the tenant may only have one opportunity to get it right. If they fail to properly exercise the break, they could remain on the hook for the rent and all the other tenant obligations under the lease (insurance premiums, service charges, repairs, etc) for several more years.
Tenants must remember that there are two distinct aspects to breaking the lease. Firstly, a valid break notice has to be served. This usually needs to be done several months before the lease will actually come to an end and any specific requirements in the lease as to the content or service of that notice must be strictly complied with.
Once the break notice has been validly served, the tenant must not relax too much. Most break clauses impose conditions that the tenant must have complied with by the break date if the lease is actually to terminate. We may have moved away from the dark days when break clauses were frequently conditional upon the tenant having complied with all its obligations under the lease (meaning that even a modest breach of, say, the repairing or decorating covenants could frustrate the break), but even the Commercial Lease Code recognises that a landlord should legitimately be able to require that the tenant has at least paid the rent up-to-date and given up occupation of the premises.
With landlords reluctant to take premises back that may have been difficult to re-let during and following the recession, we have witnessed a plethora of cases involving tenants finding ever more ingenious ways to get things wrong – serving the break notice on the wrong party (such as a former landlord or a superior landlord), or at the wrong address, getting the dates wrong, or even in some cases getting its own name wrong on the break notice!
In other cases, unfortunate tenants have fallen at the final hurdle by failing to satisfy the requirement in the lease to give up vacant possession on the break date.
Failure to give up vacant possession can take different forms. At one end of the spectrum lies the tenant who is still physically in-situ when the break notice expires. In one such case, the tenant remained in the premises over the weekend following the break date in order to complete its repair of outstanding dilapidations. This turned out to be a well-intentioned but ultimately costly miscalculation on the tenant’s part, since the break clause was conditional on vacant possession but not on compliance with the repairing covenant. The tenant would therefore have been far better served by getting out on time and then arguing the toss over dilapidations in the usual way.
At the other end of the spectrum lies the tenant who has clearly vacated the premises but who has failed to remove all its belongings from the premises. The courts have ruled that vacant possession is not given where what is left behind constitutes “a substantial interference with the landlord’s right to possession of a substantial part of the premises”, so it will be a question of fact and degree to be assessed on a case-by-case basis and tenants should not expect any favours from the courts.
The lesson for tenants is to remember that break clauses must be complied with strictly and fully. Even if you’ve managed to successfully serve a valid break notice, any conditions to be satisfied on the break date must be complied with. If vacant possession is a condition (which it usually is), make sure you get your people out of the premises on time. You also need to take your stuff with you, and that can even include tenant’s fixtures and items such as demountable partitioning.
Since the test is whether what is left substantially interferes with the landlord’s right to possession of a substantial part of the premises, it is not the case that the break will automatically fail if the tenant leaves absolutely anything at all behind, but why take the risk?
This article was originally published through Place Resources