This is the the question many commercial tenants will be asking themselves during the on-going Covid-19 crisis.
Government closures, furlough and working from home has left many businesses with empty commercial premises and consequently commercial tenants are seeking ways to improve their cashflow and reduce their overheads. One of the ways to reduce overheads is to consider whether commercial premises are still required and whether a break clause within their lease (if any) should be exercised.
A break clause can be found in a fixed term lease and it is an express right which allows either the tenant or the landlord to end the lease early, subject to usually 6 months' written notice. A well drafted lease will detail who, how and when the break clause can be exercised and what (if any) conditions may be attached to a break clause to make it effective. Time is often of the essence in respect of any time limits to exercise the break. It is important to establish when the Break Date is and this will be detailed in the lease and there are different types of break dates which the parties would have considered before entering into a lease:
- Rolling dates:- meaning that the lease can be terminated at any time;
- Specified dates:- the tenants needs to have been in the premises for a specified period of time before the break clause can be exercise (for instance, at least 12 months' before they or their landlord can exercise a break right); or
- Fixed dates: – the lease can be terminated on certain dates as detailed in the lease.
Prior to serving notice to exercise the break clause, the tenant will need to consider whether all conditions within the lease relating to the break clause have been complied with, which includes the rent being paid in full. The break clause will specify whether the conditions need to be met at the time of service of the notice or at the break date but this is usually at the break date.
The next stage is to serve the break notice on the relevant party.
The break notice will take effect once the tenant has left the property and returned the keys to the landlord on or prior to the break date in accordance with the terms of the lease, this includes the state of repair that the Tenant is required to leave the property in at the end of the term.
Lastly, if the lease is registered with HM Land Registry, the leasehold title will need to be dissolved and closed.
Failure to fully consider these legal and commercial factors may result in unintended outcomes and adverse financial implications for the tenant and its business. Therefore, it is always advisable for a tenant, seeking to exercise its right to break, to obtain specific legal advice from a specialist who can help navigate these issues and any others that may crop up during the break process.
At Gepp Solicitors we can advise on all aspects of commercial property law. For more information and guidance, please contact us on 01245 493939.
This is not legal advice; it is intended to provide information of general interest about current legal issues.