Effecting your Break Clause: Avoid the Pitfalls

Posted by LDG - The Creative Property Agency on 21st July 2021 -

Breaking your commercial lease effectively isn’t as always as a simple as people first presume, and whilst many businesses have not (yet) experienced their notice to break being challenged, it is unfortunately quite common for mistakes to be made, which could result in the notice being invalid, and a businesses’ liability remaining in place.

We asked Danny Schwarz of Central London based legal firm, Lawrence Stephens, to outline the common pitfalls and how best to avoid them.

Notice Period: It is very easy to miss the final date for service of a break notice. It is often a one off break date (and not a rolling break) with a minimum period for giving notice and once the final date for serving notice has passed the break cannot be exercised.

When you complete your lease, diarise a reminder weeks in advance of the final date to serve the break notice so you are prepared, and can make the necessary decisions.

Form of notice: While most leases only require notice to be given in writing, some may be more prescriptive. For example, you may be required to submit notice using a specific form set out in the lease and on a specific person who may not be the landlord (for example the managing agents).

Whilst emailing is considered by many to be the main form of contact with their Landlords, when it comes to giving notice, usually emails aren’t accepted. We recommend several methods of service to be covered.

Method of service: Some leases will rest on the provisions of Section 196 of the Law Property Act 1925 (service), while some will have more detailed requirements for service.

Your solicitors should provide you with an outline of these requirements when your start leases so you are aware the requirements. If not, if you contact a firm of solicitors like ourselves, we can help you run through the requirements.

Ensuring the details are correct: Who is the landlord and are they based in the UK? Has there been a change of ownership? Who is the tenant? These are all details which must be considered when serving a break notice; if they are incorrect, they could invalidate the break.

Land registry checks will help to help ensure that the notice is received by the correct people and on time.

Conditions of a break clause: Most break clauses are subject to conditions that have to be met on the break date, otherwise the exercise of the break could be invalid. These normally include: being up-to-date with payment of annual rent and sometimes other rents such as service charges and insurance; there being no breaches of the tenants’ covenants in the lease (often limited to material breaches); providing the landlord with vacant possession of the property on the break date (what is vacant possession is an article all of its own) and finally, sometimes a payment to the landlord.

This is particularly important to consider at the moment due to Covid where many commercial tenants are in arrears or have rent deferments in place. In most circumstances, Landlords are practical but if outstanding rents are owed, taking legal advice would assist you in coming up with a strategy whereby you can settle your liabilities without invalidating your break notice.

Once served, it is final: You have to be sure of your intentions when serving a break notice because once it is served it cannot be withdrawn, even by consent. That is to say, even if the parties both agree to a withdrawal, the lease will still determine on the break date. In addition, sometimes tenants may think that they can deliberately fail to meet one of the conditions of the break  clause to make invalidate the notice if they change their mind, however it is important to remember that, if a landlord chooses, they can usually waive any of the conditions.

Giving yourself enough notice that a break clause notice is coming up will give you time to prepare ahead. By giving yourself a good few weeks grace, you can review alternative accommodation or take advice from your agent so you don’t make any rash decisions.

Seek legal advice: While a tenant can serve a break notice on their own, for a relatively modest fee, it is worth getting the advice of a lawyer and the confidence of knowing that the break notice will be served validly by a professional.

We have seen many tenants seeking such advice when it is too late, and having to bear the financial consequences as a result. By following the above steps, and working with a professional, this doesn’t have to be the case!