Breaking up is hard to do……
Many commercial leases contain break clauses allowing a landlord or a tenant to choose to end their lease early. A break may arise on specified dates or it may be exercisable at any time provided that the party exercising the break gives a minimum amount of notice.
Exercising a break sounds simple enough but, in reality, it is very easy for the party wishing to break the lease to be caught out. If they are they will be stuck in a lease which they no longer want.
As this is a blog (not a book!) we’ve highlighted some examples of the potential traps below.
Some things to consider
1. Use your calendar!
If you miss a break date or the deadline for serving notice to break, there are no second chances. If you have a fixed break date, don’t just diarise the break date but also put reminders in your calendar to allow yourself plenty of time to think about whether you wish to break the lease and to prepare and serve any break notices.
2. Don’t be caught out by the small print…
Validly exercising a break clause involves more than just firing off a letter to the other party confirming you wish to break the lease. For example, other clauses/schedules in the lease may set which methods you can use to serve the notice and where it needs to be sent. Particularly for a tenant, the lease may set out certain pre-conditions which the tenant must have complied with by the break date if they wish to break their lease.
These conditions can sound relatively harmless but actually contain hidden traps.
For example, one of the pre-conditions typically found in a break clause is:
The Tenant must have paid all rents or other payments due under the Lease as at the break date.
What does this mean? “Rents” may well mean other sums like service charge and insurance rent as well as the annual rent. References to other payments may pick up interest which fell due on historic late payments even if the landlord never demanded interest at the time (and hasn’t done since).
If rent is payable quarterly in advance and the break date doesn’t fall on a quarter day, the tenant will still need to pay a full quarter’s rent on the quarter day falling immediately before the break date: they can’t simply pay up to the break date.
These are just a couple of examples of what could go wrong for a tenant.
3. Don’t fire too soon!
Once you’ve served your break notice, you can’t withdraw it if you have a change of mind.
4. Some good news please…….
If you are considering entering into a lease, or if you already have a lease, the friendly team at Guest Walker are happy to review it and to advise you of any hidden nasties (whether in relation to the break clause or elsewhere in the lease) and/or to assist you with serving a break notice.