The drafting and service of a break notice sounds simple. In reality, there is a raft of recent case law which suggests that tenants are often getting it wrong and landlords are taking advantage.
A landlord is under no duty to correct a tenant who serves an invalid break notice. It is therefore extremely important for a tenant to give early and careful consideration to the terms of its lease to ensure that a valid break notice is served. Below we look at some of the less obvious barriers to successfully exercising a break clause.
Who can serve a break notice?
If the break clause is expressed as personal to the original tenant then only the original tenant can serve the notice to break. Worryingly, upon assignment of a lease the incoming tenant loses the benefit of the break and if the break notice incorrectly names the tenant (even if that person is in occupation) the notice is likely to be ineffective.
Who is the landlord?
The terms of the break in the lease are likely to state that the break notice must be served on "the landlord". However a landlord's interest may change hands many times during the term and investigations must be made as to the identity of the present landlord.
When can the notice be served?
A break clause may provide that the lease can be terminated at any time (a rolling break); at any time after a specified date; or on an agreed fixed date or dates.
Time is of the essence in relation to break clauses and any deadlines should be strictly complied with. There is no margin for error.
How do I exercise the break clause?
The mechanics here are critical. There may be a provision (often disguised elsewhere within the lease) which states that to be valid, notices have to be served at the same time upon a third party, such as a managing agent.
How do I calculate the break date?
Ascertaining the precise break date usually depends upon how the "term" of the lease is to be construed having consideration to the terms of the lease as a whole (e.g. a break date based on a term expressed tobegin on a certain date may be construed differently to a term expressed to run from the same date).
Other terms in the lease may affect the calculation of the break date and thorough checks should be undertaken for any variations by deed or otherwise to the lease. The devil is in the detail.
What if there are conditions attached to the break clause?
Break clauses may specify pre-conditions to a tenant exercising a valid break notice. It is essential to ensure that the conditions have been strictly complied with otherwise the break is likely to be ineffective.
Common break conditions include:
- service of written notice a given period of time before the break date;
- payment of "all sums due"; and
- "compliance with other covenants".
"All sums due" includes rent, service charge, insurance and any other amounts due under the lease (such as interest). Disputes often arise about how much has to be paid so the tenant should be careful and approach the landlord early.
In a recent case a tenant was found to have served an invalid break notice, having failed to pay £130 of interest on historic rent arrears, notwithstanding that at the time of the attempted exercise of the break the rent was paid up to date and interest owing had not been demanded. The tenant therefore found itself “locked in” to the lease for a further 5 years for want of £130.
"Compliance with other covenants" picks up all other tenant's covenants. The most difficult to comply with are the repairing, decorating and reinstatement covenants. Any works must be donebefore the break date so as to make the break effective. It is important to plan ahead.
How do I give vacant possession?
Many break clauses will contain a condition that the tenant must give vacant possession at the break date or this condition may be implied into the lease in any event.
If the tenant intends to leave anything on site, whether it be chattels, general rubbish or even a person (even in circumstances where the landlord is aware of this and appears to have agreed), they should seek advice as to the consequences to ensure that the break remains effective.
What other documents might I need to consider?
A tenant should also consider whether it has granted any other rights over the property to a third party (for example, a car parking licence). Such agreements would need to be terminated prior to the break date in order to ensure vacant possession is delivered to the landlord.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.