To break or not to break a lease

Year Published: 2014

In a still delicate property market, the ability of either landlord or tenant to effectively bring a lease to an end early and before the full term of the lease is a common battle ground. Where the tenant wants flexibility as to term, or the landlord wants to retain a tenant to the end of the term, a break clause is a useful tool. A break clause can be included in a fixed term lease allowing either landlord or tenant to terminate the lease early.

The key to break clauses are often the conditions attached to the right to break. These must be strictly performed. It is generally for the tenant to comply with these conditions. Failure to comply with just one condition is likely to be fatal to a tenant’s attempt to break a lease leaving that tenant with having to see out the full term. A common condition is that the tenant must have paid all of the rent or other payments due. Best practice is for the tenant to pay all of the rent or other payments due not just up to the proposed break date but up to the following quarter day. The tenant can then reclaim the over payment of rent, from the break date until the quarter day, from the landlord once the lease has been effectively broken.

Another common condition is that the tenant must not be in material breach of covenant including the repairing covenant. Landlords can be tricky about this and disputes can arise as to the condition of the premises in question with landlords often refusing to accept that the tenant has complied with the repairing covenant and therefore refusing to accept that the tenant has effectively exercised the break clause.

From the tenant’s point of view, early engagement with the landlord, often through surveyors, is sensible to ascertain what repairs the landlord considers need carrying out. On the other hand, if the landlord does not want the tenant to be able to break the lease, silence could be the best approach as there is no obligation on landlords to go out of their way to assist tenants in complying with their covenants.

Breaking a lease is commercially so important and legally can be so full of pitfalls that taking legal advice may be wise. When negotiating lease terms, legal advice is likely to assist in negotiating acceptable conditions which have to be complied with to enable the break notice to be effective. When the time comes for the service of a break notice, advice may pay dividends to make sure that the procedures that need to be carried out are correct, whether you are seeking to exercise or oppose a break notice.

For further information or if you want to discuss a break clause, contact a member of our Dispute Resolution team on 0161 475 7676.

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