Information about Conditions in Lease Break Clauses for Commercial Tenants
The pandemic has ushered in a revolution in working practices and record numbers of employees are working from home. With this and other pressing financial considerations in mind, employers will be considering what office accommodation will best suit their business needs moving forwards and whether any changes are necessary.
Employers who have leases of commercial premises may well be scouring the fine print to remind themselves whether they have the right to terminate their leases early.
Leases might include break provisions that enable a tenant to serve a break notice on their landlord to bring a lease of commercial premises to an end before the end of the term. Break clauses if exercised properly might, for example, enable a tenant to terminate a lease at any time or at any time after a specified period or on an agreed fixed date or dates.
However, break clauses may have been drafted to include various conditions that tenants must comply with before being able to validly exercise any break rights.
A typical break clause might read something along the following lines:
“A Break Notice served by the Tenant shall be of no effect if at the Break Date stated in the Break Notice the Tenant has not paid by way of cleared funds any part of the Annual Rent (plus any VAT) which was due to have been paid”.
In addition to full payment of all rent due, other examples of conditions that are commonly included in leases might stipulate that a tenant must have performed all of its lease covenants or that a tenant must not be in breach of its repairing covenants in order to exercise a right to break the lease early.
Where these conditions are stipulated, they must be complied with in order to validly exercise break rights.
Many commercial tenants have not been paying their rent or their full rent during the lockdown as a result of economic conditions and/or they may not have complied with other covenants in their leases such as repairing obligations. If this is the case and there are relevant conditions attached to the exercise of any break rights by them, it is very important for them to be aware that this may prevent them from relying on those break provisions.
In any event, great care must be taken by tenants in exercising break rights to avoid a myriad of potential pitfalls that may defeat their attempts to terminate leases earlier than the end of the full term originally agreed in the lease. It is recommended that legal advice is sought by tenants of commercial premises if they are looking for ways to bring their leases to an end.
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If you require any specific advice or assistance about any of the issues referred to in this blog, or any other lease issues, please contact Muscatt Black Graf by telephone on 0207 586 1141 or by email to email@example.com, or fill in our online contact form.
This blog was prepared on 26 January 2021. It is not intended to be advice and should not be relied upon as such.