Break Notices: A Guide for Commercial Landlords
A break clause can be a valuable tool for a commercial landlord. It can allow a lease to be brought to an end before its contractual expiry date, helping regain possession, redevelop the property, sell it or secure a new tenant on different terms.
However, exercising a break clause is rarely as simple as serving a notice and waiting for the break date to arrive. Commercial leases often contain strict requirements and, if those requirements are not followed precisely, the break may fail.
Check your break clause first
Prior to taking any action, carefully review the break clause within the lease alongside any supplemental documents (licences, side letters or deeds of variation).
Check the following provisions:
- When the break right can be exercised
- How much notice must be given
- How the notice must be served
- Whether any conditions must be satisfied before the break takes effect.
One of the biggest mistakes landlords make is assuming all break clauses work in the same way. They do not. A small difference in wording can have significant consequences.
Make sure key dates are diarised well in advance. Leaving matters until the last minute can create unnecessary risks and pressure. A review by a solicitor can also help identify any requirements, obscure conditions or potential pitfalls before the notice is served.
Get the break notice right
When it comes to break notices, the smallest detail can make a big difference:
- Check the names of the parties
- The property description
- The break date
- The notice period; and
- Ensure the notice is signed correctly and served exactly as the lease requires.
A successful break can have major commercial implications, so it is often worth having the notice prepared or reviewed by a solicitor experienced in property disputes. A few hours of legal input can be considerably cheaper than years of litigation over whether the break was valid.
Service provisions matter more than you think
Even a perfectly drafted notice can fail if not served correctly.
Many leases specify exactly how notices must be served and where they must be sent. Some also require service on additional parties, such as guarantors.
Treat service as seriously as the contents of the notice itself. Keep records, retain proof of delivery and avoid assumptions. A break notice that never arrives, or arrives in the wrong way, may be no break notice at all.
Watch out for conditions to ensure strict compliance
Not all landlord break rights are unconditional. Sometimes the lease requires specific steps to be taken before the break can take effect. In some cases, relevant conditions may not even appear within the break clause itself but elsewhere in the lease.
The courts generally expect strict compliance with break conditions. In the context of break clauses, "almost compliant" is often not compliant at all. Careful planning and timely advice can help ensure nothing is missed.
Start planning for life after the lease
As the break date approaches, think about the practical handover of the property.
It can be helpful to inspect the premises, discuss arrangements with the tenant and address practical issues such as keys, alarm systems and utility accounts.
Equally important is to consider what comes next. Whether your plans involve redevelopment, a sale or a new letting, an early start will put you in a much stronger position once the lease comes to an end.
Key takeaway for landlords
A landlord's break clause can be a powerful asset management tool, but it only works if the lease requirements are followed carefully:
- Review the lease early
- Diarise the deadlines
- Ensure the notice is drafted and served correctly; and
- Identify any conditions attached to the break.
Considered and careful preparation, can avoid costly surprises and maximise the chances of achieving a clean and effective exit.
The purpose of a break clause is flexibility. No landlord wants to discover, on the intended break date, that the lease has not actually been broken.
How Hamlins can help
The Hamlins Real Estate Disputes team has expertise in both commercial and residential matters. We seek to obtain the best outcome possible for every client, no matter how big or small the issue may be. If you would like a conversation to find out how we might help you, please get in touch.