In the current climate, all types of occupiers including occupiers of retail, office and warehouse space, will be considering their leasing requirements and looking to rationalise their property portfolios. As a result, landlords may find that they are seeing an increase in the number of tenants seeking to operate break rights in leases.
For obvious reasons, receiving a break notice from a tenant is often not what a landlord wants. However, if as a landlord you do receive a purported break notice from a tenant, it is worth bearing in mind that there are a number of hurdles the tenant will still need to overcome before it successfully brings its lease to an end.
Has the break notice been validly served?
Landlords often receive break notices that, for one reason or the other, are arguably invalid:
- Has the notice been served on the correct party?
Often tenants will fail to properly identify the landlord, or they may serve the notice on a party other than the landlord, most often a managing agent or the landlord’s solicitor. This may result in the break notice being invalid.
- Has the correct method of service been used?
The ‘service of notices’ provision in any lease may require the tenant to serve a notice on another party as well as the landlord, or at more than one specified address, or adopting a particular method of service (e.g. by hand). If the tenant fails to strictly comply with any mandatory service requirements in its lease, then the break notice is likely to be invalid.
- Has sufficient notice been given?
Invariably break provisions will require a tenant to give a certain amount of notice, whether this be three months, six months or some other period. Tenants will sometimes fail to give sufficient notice, often by either a day or two if the tenant has simply miscalculated a notice period. Failure to give sufficient notice will invalidate the notice.
- Has too much notice been given?
There is case law to suggest that a tenant cannot serve a notice too far in advance. For example, if a tenant has to give six months’ notice and, in fact, gives notice a number of years in advance, this may, depending on the specific wording of the break clause in question, invalidate the notice.
There are, of course, many other deficiencies which may invalidate a break notice. Therefore, if a landlord does receive a notice purporting to break a lease, it is worth seeking advice as to its validity before corresponding further with the tenant.
Has the tenant complied with any break conditions?
Most leases will impose certain break conditions on a tenant. Two usual break conditions will be that the tenant has paid all rent due under the terms of the lease, up until the break date, and that, on or before the break, the tenant has given up occupation of the premises.
It is important to remember that, if a break is due to operate midway through a quarter and there is a condition requiring that the tenant must have paid all rent due under the lease up to the break date, the tenant must have paid the full quarter’s rent in order to satisfy the break condition. Further, in the absence of an express provision in the lease to the contrary, the landlord will not be obliged to repay any overpaid rent.
It is also worth noting that some leases will have particularly onerous break conditions, such as requiring a tenant to give up vacant possession (as opposed to just occupation), or to carry out certain reinstatement or repair works. Such conditions could well provide a landlord with the opportunity to argue that a tenant has failed to operate a break.
If a tenant fails to comply with any break condition (no matter how onerous) then, unless the landlord waives such non-compliance, the lease will continue.
So what should landlords do?
If a landlord receives a break notice, it should not just assume that it is valid or accept that the lease is going to terminate on the date specified in the notice.
It is often worth a landlord seeking advice on the validity of a break notice and also any break conditions, which may provide it with an opportunity to challenge a tenant’s ability to break its lease.