Landlords getting tougher over commercial break clauses

The standard break clauses to be found in most commercial tenancy agreements often lead to disputes, but it’s thought the numbers are likely to rise dramatically over the coming few years as the country adjusts to the Brexit decision to leave the EU.

Declining orders mean more and more firms may use the break clause option to downsize or just find a better deal elsewhere. In their haste to depart and save money, tenants may not be too careful about meeting all the conditions of the lease, particularly relating to maintenance and repairs.

The landlord is just as likely to be money conscious. In better times, a tenant departure might only be a temporary inconvenience. Now it can be the difference between staying afloat or going out of business.

Faced with the prospect of empty premises they have very little chance of re-letting, landlords increasingly respond by poring over the small print of the tenancy agreement to make sure everything is in order.

It means there have been several recent cases where landlords have challenged break notices for technical reasons.

One example involved a tenant who tried to exercise the break clause by giving the landlord six months’ notice as required by the tenancy agreement. The landlord refused to accept it because the tenant had failed to also give notice to the property’s management company – another requirement of the lease.

The tenant argued this was a mere technicality. The case went all the way to the Court of Appeal where the landlord eventually won and prevented the break clause being exercised.

In another case, a commercial tenant was prevented from terminating a lease because it gave notice under the name of its new parent company rather than its original name which was still on the tenancy agreement. This was in spite of the fact that the landlord had been informed of the change of name and rent invoices were sent to the parent company.

Conditions relating to vacant possession, repairs and maintenance can also lead to disputes as landlords take a tougher stance. They need their properties to be in a fit state so they can re-let them as soon as possible.

It means that if work is not carried out to an acceptable standard or is not completed exactly on time then the landlord may refuse to accept the break. Some tenants try to prevent any problems by asking the landlord for guidance on work required but the landlord is under no obligation to help.

Landlords who do choose to help should make it clear that any information they give does not over-ride the need to comply with the terms of the lease.

Both sides are entitled to protect their interests and so now, more than ever, both sides must try to make sure they comply exactly with every detail of the terms and conditions in the lease. Failure to do so could prove very costly.

Please contact Janice Young about the issues raised in this article or any aspect of commercial property law.