Lease Break Options

How to I exercise a break option safely?

Below are some of the key issues you need to consider well in advance of your intended lease break date. It is worth seeking specialist advice to ascertain exactly what you need to do to exercise a break option safely as the legal profession is full of examples where parties have failed in their attempt to exercise a lease break option thus being tied into the lease for the remainder of the term.

Who is entitled to exercise the break option?

This question can be particularly pertinent for group companies where the company occupying the premises may not necessarily be the company entitled to exercise the break. Check whether the break clause is personal to the original tenant and ensure that the correct name of the tenant is used in the notice. Any ambiguity may render the break notice ineffective.

When does the break notice need to be served?

The lease may state that the break can be exercised at any time (a rolling break), on a specified date, or at any time after a specified date. The break notice will usually need to be served a certain amount of time prior to the intended break date. Time is of the essence is relation to break options, which means that any deadline must be strictly complied with.

What do you need to do to exercise the break?

Break clauses are often conditional on compliance with certain conditions and the degree of compliance with conditions required varies between leases. If the lease requires absolute compliance with conditions then, in reality, exercising your break option may be virtually impossible as even a minor breach of covenant will invalidate your right to break. Where the lease requires you to have “materially”, “reasonably” or “substantially” complied with the conditions or covenants, minor or trivial breaches should not affect your right to break. However, you should seek specialist advice as to how and when to satisfy any conditions for the exercise of the break option.

To clarify often a break notice might state that in order for a tenant to action a break clause, the property must be given to the landlord with vacant possession, all monies owing pursuant to the terms of the lease are up to date and paid and the tenant has materially complied with the lease. How these requirements are to be proven, or challenged, will be dependent on the precise lease term. RPS recommends you take professional advice in this regard.

 How do you serve the break notice?

Requirements for serving a break notice will usually be specified in the lease. These may be specific as to who is to receive the notice and the method of delivery to be used as any such provisions must be fully complied with. The longer the lease and the higher the rent the more crucial it becomes effectively to be able to exercise a break option. It goes without saying that so far as the tenant is concerned, an invalid exercise condemns the tenant to continuing obligations in respect of rent and repair in particular until such time as the option presents itself again, if at all. This can be a highly expensive consequence not only for the tenant but in some unfortunate circumstances for professional advisers also.

 These are just a sample of issues which tenants must consider when deciding whether they wish to or indeed are able to action a break clause. To make matters worse for tenants, landlord’s fears over having empty commercial properties in the current economic climate is causing landlords to take specialist advice to see whether they can invalidate tenants break options.  

As you can see the requirements for exercising your break option will depend on the precise terms of your individual lease. You may also be able to negotiate with your landlord to see if he will waive any conditions attached to the break option in return for payment.

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