Break Clauses

In times of increasing economic uncertainty commercial tenants understandably rely heavily on their ability to exercise a break option in their lease so they can effectively shut up shop early if the need arises.  Break clauses can, however, be notoriously difficult to operate given the need that the terms of the break clause have to be strictly complied with for them to be validly exercised.  Often leases require that a tenant has complied with all obligations in the lease and a recent case illustrates the strictness with which this rule can be applied.  In this case a tenant served a break notice on the landlord to which the landlord did not respond.  The tenant assumed that the break notice was effective vacated the premises and returned the keys to the landlord.  The following month the landlord responded by saying that the tenant had not complied with the break clause because there was an outstanding interest due to the landlord, even though the landlord had never claimed such interest from the tenant.  The factual position was that the tenant had in the past paid rent slightly late (on three occasions) and under the terms of the lease the landlord was entitled to interest if any rent or any other money payable under the lease was paid late.  Clearly the tenant had not realised that he was liable for interest since the landlord had never claimed this, however, the High Court ruled that there had not been full compliance with the terms of the lease therefore the tenant had not been able to validly exercise the break clause.

The above case should serve as a reminder to tenants to undertake proper due diligence before exercising a break option in the lease.  In the aforementioned case it was a mere interest payment of £130 which effectively invalidated the tenant's break notice and prevented him from terminating the lease early.  Break notices are fraught with problems and it is sensible to always take legal advice in advance when considering to exercise a break option in the lease. 

If you have any questions in relation to commercial leases then please contact the Commercial Property Team.

Kimat Singh