Exercising a break right in a lease? Some things to consider.

By Brodie Pearson

Trainee Solicitor

25 October 2023

Article Insights

Due to the uncertainty of today’s financial climate coupled with more flexible working arrangements, we see more and more commercial tenants looking at their break rights.

Whilst break rights can take many different forms, this article focuses on fixed break rights that can be invoked by the Tenant.

What is it?

A break right allows a tenant (or a landlord) to terminate a lease before the expiry date, usually subject to conditions set out in the lease. These conditions must be strictly adhered – both break notices and compliance of the conditions attached thereto will be scrutinised carefully.

If a break clause has been drafted correctly, tenants are provided with an invaluable opportunity to terminate a lease early if it is no longer economically viable.

Break Date

A logical starting point is to check the break date which should be defined in the lease. This should be checked in conjunction with how much notice is required so that a timeline can be established for the service of the break notice.

Confirming the Landlord’s Identity

Break notices are to be served upon the registered proprietor which means that the landlord’s identity must be confirmed so that the notice can be addressed to the relevant person. To do this, official copies from the Land Registry must be obtained to establish who the registered proprietor is. Whilst this may seem an obvious point, in many cases where management companies are used as intermediaries, the landlord may have no contact with the tenant, or they have perhaps sold the property without making the tenant aware.  It is also sensible to check the most recent rent demands and if they refer to a different entity as compared to the official copies it is good practice to serve a copy of the break notice on the entity that issues the rent demands.  Where there is a corporate landlord, Companies House should be checked in order to obtain their most recent registered office details.

Break Conditions

It is not uncommon for a break clause to require the tenant to make all payments due under the lease by the break date. Care must be taken here following Avocet Industrial Estates LLP v Merol Ltd and another [2011] as this could include default interest on late payments even if the landlord has not issued any demand for such interest. In such a situation, the amount of interest should be calculated and paid to the landlord to avoid breaching the break conditions.

Other conditions which should be resisted include the condition of giving vacant possession and also the condition that the break can only be exercised if there are no material breach of covenants.

Serving the notices

A point to emphasise when serving the notice is that whatever form of notice the lease prescribes, should be strictly adhered to. No matter how evident it is that the tenant wanted to terminate the lease, if the break clause were to require blue paper, then it would have to be on blue paper as Lord Hoffman infamously acknowledged. Equally, notice provisions must be reviewed diligently to check if service must be carried out by a specific method. In practice, notices are usually served by several methods.

Conclusion

Whilst break clauses are extremely beneficial, an invalid break clause or notice can be detrimental. Therefore, legal advice should be taken to avoid any issues arising. If you require support, you can contact our Commercial Property team.

Disclaimer: General Information Provided Only
Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.