Break options can be an invaluable asset for Tenants in tough economic times.  They offer the promise of flexibility and can be a handy tool for re-negotiating terms with the Landlord.  Tenants must beware taking their break option for granted given the many pitfalls to be avoided. 

Landlords may seek to deny Tenants their opportunity to end the lease early and the courts continue to apply strict rules of interpretation to break provisions.

The tips below will help to secure the smooth running of your break option!

Timing is everything

Time is of the essence in respect of any time limits in break clauses.  The break date should be considered carefully as this will influence the calculation of timings for service of the break notice.  The break date will usually represent the deadline for any pre-conditions (such as delivering vacant possession) which need to be complied with. 

Tenants should review their leases early to allow plenty of time for notices to be served.  Many break options specify a strict 6 month window of opportunity and there are no second chances if the key dates are missed. 

Tenants should also note that once served, a break notice cannot be unilaterally withdrawn so a genuine intention to exercise the break is essential.

The personal touch

The identity of both the Tenant and the Landlord must be accurately reflected in any break notice and its service.  Where there are joint tenants to a lease, the break notice must clearly and unambiguously be from both tenants.

Uncertainty often surrounds personal break options which require careful thought, both at the time of their negotiation and at the exercise of the notice.  A personal break option in favour of the original tenant cannot be operated by that original tenant once they have assigned their interest in the lease.  

Service that delivers

The lease must be scrutinised for any provisions prescribing the forms of notice and procedure for service required.  These provisions may not be in the same part of the lease as the break option but overlooking them can have severe consequences.  A recent case involved a lease which stated that a notice given by fax was only deemed to be served on acknowledgment of receipt being given by the Landlord.  The fax was sent by the Tenant within the break option time limits but the acknowledgment was not given by the Landlord in time.  So the notice was not validly served and the attempted break was ineffective.

Another example of problems experienced by a Tenant arose when a subsection of the Tenant’s lease provided that no notices served on the Landlord would be valid unless the property manager was served with a copy (at a separate address).  The Tenant served notice on the Landlord within time but overlooked serving a copy on the property manager until after the deadline and the notice was accordingly invalid.

Conquer your conditions

The Code for Leasing Business Premises 2007 states the only pre-conditions to exercising a break option should be:

• payment of the main rent
• giving up occupation
• leaving no continuing subleases 

Not agreeing to pre-conditions in the first instance is the best course of action for Tenants but Landlords may insist on them, in which case they must be strictly adhered to.

Tenants should keep evidence of compliance with covenants (e.g. decoration) where possible and ensure that all sums due are paid, even if they are disputed or relating to a period after the break date. 

It may be worth carrying out a compliance survey to identify steps to be taken or negotiate what is required by the Landlord.  This can be done via a schedule of dilapidations or an agreement to pay an agreed amount of liquidated damages relating to outstanding breaches.  Any waiver of condition by the Landlord should be clearly given in writing and not expressed to be without prejudice. 

If you would like to talk to someone about break options please contact Ben Lamb, commercial property solicitor on 0113 227 0383 or at ben.lamb@gordonsllp.com.