A break clause is sometimes included in a fixed term lease to allow a party (or both) to terminate the lease early. The right to break is sometimes on a specified date or can be exercised at any point, usually subject to conditions.
There are many tactical reasons for including a break clause and the circumstances should be discussed with your legal advisor before entering into a new lease to ascertain whether a break clause would be appropriate.
Whilst on the face of it serving a break notice looks simple there are some crucial considerations. The following are a few (but no means all!) of the potential pitfalls:
- Are there any express requirements in connection with the notice that need to be strictly complied with? This could include how the notice should be served or even the colour of the paper the notice should be served upon;
- Is the break notice addressed to the correct party? Whilst this may sound simple, this is an easy mistake to make. Care must be taken when sending documents to a company as their registered office address may not be the address that you usually use to correspond with them;
- Are there any absolute conditions in the lease? This could include the tenant paying rent and performing and observing its covenants and conditions before any break can be exercised. If relevant and not adhered to, this will prevent the tenant from exercising the break clause, no matter how small the breach. A recent case example includes a lease that required the property to be painted in the last year. The property was painted just before the beginning of the last year. The court held that the condition had not been satisfied, even though in reality, there was no difference and the break was held as not being exercised validly.
- Have all payments been made? Some leases require that the tenant to make all payments due under the lease by the break date. This may include default interest on late payments- even if no demand has been issued and the interest is nominal. One recent case example includes a tenant’s failure to pay interest of £130 leading to the break not being validly exercised.
It may be of paramount importance for a party to exercise a break clause – after all, it ends the lease and the obligations that go with it. If such party wishes to end the lease, it will no doubt not wish to end up having to continue with the lease merely because the break clause has not been exercised properly. Each lease will need to be considered in light of its provisions but the above points are a broad overview of just a sample of things that you may need to consider.
If you have any queries regarding break notices or would like to discuss the matter further please contact Nicole Kalli (nk@cbglaw.co.uk)