Freddie Mercury might have wanted to break free but it is something more and more tenants are finding hard to do. While the tips given below to avoid such problems are not a kind of magic, if followed they can help tenants avoid costly mistakes. It is much better to avoid the numerous traps that await tenants, than be the tenant who bites the dust.
The recession in the commercial property world has seen an explosion of disputes relating to the exercise of breaks in leases. This should be no surprise – increasing numbers of tenants are downsizing, aiming to cut their costs by moving to cheaper premises or aiming to re-negotiate the rent on their current premises. In either case they are exercising their break clauses in their leases, break clauses agreed many years ago, often imperfectly understood and often drafted to overly favour the landlord. As always, there are some landlords who want it all and want it now regardless of how unfair it is.
At the same time, landlords are facing higher costs and lower occupancy rates. It is therefore little surprise that many landlords are seeking to frustrate tenants’ break notices, often on seemingly frivolous or unfair grounds.
The cost of failing to properly exercise a break can be crippling for a tenant. They are tied into premises they do not want with all of the associated costs and may well have committed themselves to taking replacement premises. Mistakes by tenants in breaking their lease will do more than rock them or even take their breath away. Such mistakes can be a killer queen and destroy a tenant’s business.
Following are EC3 Legal’s top tips for exercising a break.
Tips for Tenants Wishing to Break their Lease
Not an exhaustive list, following these tips will not make you a champion, take you to Bohemia or transport you into a rhapsody but they might help you avoid very costly mistakes
- Make sure your break clause is properly drafted to begin with
- Check your lease carefully
- Ask the Landlord to confirm sums due to break the lease
- Pay an additional sum prior to the Break Date
- Arrange any dilapidation works in good time
- Consider an early surrende
- Make sure you give vacant possession
- Get good advice in plenty of time
No tenant break should be conditional on anything except giving vacant possession and paying the rent up to date. Absolutely do not accept any other conditions as they enable unscrupulous landlords to trip tenants up.
Well before you need to exercise your break, check your lease carefully and make sure you know what the conditions are to exercise your break. Make sure you diarise any dates (with a substantial safety margin) for steps you need to take to exercise the break. Make sure other people in the organisation are also aware of the dates so the departure of any individual does not leave the organisation as a whole ignorant of the break issues.
If your break is conditional on rent and other sums being paid up to date ask the landlord to confirm the accounts due. The landlord is under no obligation to tell the tenant this but if it does it would be estopped from denying the tenant’s break on the basis some other sum of money due has not been paid.
If your break is conditional on all sums due under the lease being paid up to date, you are at risk of losing the break because some small sum (for instance interest on late rent) has not been paid. The sum involved may be trifling but if there are arrears, however small, the landlord may claim your break is invalid. If you have paid a small additional sum to the landlord before the break date to cover such unforeseen arrears you would be protected from such unscrupulous behaviour. If there are no arrears the Landlord must return the additional payment to you after the lease has determined.
If your break is conditional on the premises being yielded up in good repair, make sure you arrange all dilapidations works in plenty of time.
If you are going to carry out your dilapidation work yourself rather than agree a settlement with your landlord, make absolutely sure your contractors can finish the job and vacate and clear the premises some days before the break date.
If you have concerns regarding the break and your ability to meet any conditions, push to agree an early surrender with the landlord with a payment in lieu of doing the dilapidations work. Often landlords are happy with this since it enables them to re-let the premises earlier and have control over how the premises are decorated. For the tenant, it gives certainty and peace.
At the break date, you must give the premises back to the Landlord with vacant possession. You will need to make sure that any undertenant or other occupiers have moved out. Make sure any of your cleaners/ security staff/contractors doing dilapidations work, are also out of the premises. Clear the premises of all of your furniture/ rubbish/ files etc. It is surprising how often this does not occur despite being so obvious.
Exercising a break in a lease is complex and difficult. Some of the problems are so unfair, the tenant can feel that he is in the world of Radio Ga Ga. Tenants need legal advice well in advance or they risk making a very costly mistake.