Tenant’s Break Clauses

It is becoming more and more common for the Commercial Leases that I come across on a day to day basis to contain a Break Clause in favour of either the Landlord, the Tenant or, both. It has now also become, for a multitude of reasons, more important than ever before for tenants with the benefit of a break clause to exercise them. In practice, this is often more easily said than done as drafting such clauses can often be an afterthought in lieu of other clauses which are deemed to be more important. Likewise, as tenants have found in the past the Courts are not overly lenient when interpreting Break Clauses and, instead, they are usually construed strictly on the facts and, the conditions attached to the Break Clause contained within the Lease.

I have found that when a Commercial Lease does contain a Break Clause it is often heavily restricted in its nature and expressed to be conditional on the tenant having paid the rent fully up to date, observed and performed the tenant’s covenants and, providing vacant possession at the end of the notice. In this respect, the Commercial Lease in the case of, Avocet Industrial Estates LLP v Merol and Another contained such a Break Clause. Here, the Commercial Lease could be ended early by the tenant but, only, if the tenant had complied with all of the conditions of the Break Clause. One of those being that the tenant needed to pay the sum of 6 months worth of rent on, or before the Break Date.

However, despite the tenants best efforts, the Court decided that as the tenant had been consistently late in paying rent during the term of the Commercial Lease (amounting to interest owing to the Landlord in the sum of £130.00) and, as this had not been paid, the tenant was, in fact, in breach of the terms of the Commercial Lease. Such, that the Break Clause was not viewed to have been validly exercised. This was the case even though the Landlord had not formally demanded the outstanding interest from the tenant. As such, the tenant was deemed to be bound by the terms of the Commercial Lease for the remaining 5 years of the term at a total cost of £67,000.00 per annum.

As you will appreciate from reading the above the best way to protect yourself is to have a solicitor act on your behalf during the drafting stages and, to ensure that the Break Clause is appropriately worded in the first place. Likewise, if there is ever a need to exercise the Break Clause its essential to ensure that the notice is served in good time and, that the conditions contained within the Break Clause have been fully satisfied prior to serving the Break Notice. Otherwise, there is a serious danger that you as a tenant could be left with an unwanted property for the remainder of the term of the original Commercial Lease; a costly mistake.

Get in touch with our Commercial Property Department if you have any questions regarding Commercial Leases on, 01482 323 697

Please note that the information contained in this article and on our website does not constitute legal advice and is provided for information purposes only. Recipients should not act upon it, but instead they should seek legal advice relevant to their own situation from a suitably qualified solicitor.