A relationship between a landlord and a tenant is (usually) governed by a commercial lease which the parties have entered into at the same time as the tenant takes occupation of the property. Such commercial relationships are, hopefully, usually harmonious. But what happens when one party wants to end the relationship before the end of the contractual term in the lease?
There are only two ways in which a tenant or a landlord can prematurely determine a lease term:
Negotiating an agreement to surrender the lease. This usually requires solicitors and professional agents to be instructed, firstly to determine what compensation is payable by the party wishing to exercise the break (it may not always be the tenant – sometimes the landlord may wish to prematurely determine the tenants occupation) which involves paying professional fees. In addition to that expense, determining the compensation to be paid by the party wishing to determine the lease can be quite a drawn-out process akin to a Dutch auction.
Exercising a break clause. This is by far the most usual method which involves one party serving notice upon the other of its intention to determine the lease prematurely. In order for this to happen, the terms of how and when that notice is served is known as a break provision and which is incorporated into the lease terms as at the time the lease is granted.
By far the more preferable route is the latter instance, in exercising a predetermined break clause as it sets out certainty for both parties.
How Do I Exercise a Break Clause?
Within the terms of a commercial property lease there is sometimes an opportunity prematurely determine a lease term before it has come to its contractual end. This is known as a “break clause” or “early termination provision”.
The terms of the break clause within the lease will determine how and when that break clause is exercised. Frequently there are specific provisions detailing how and when the notice must be served. Do not simply look at the terms of the termination provision, you must make sure that the notice has been properly and validly served on the party receiving it. This is not always apparent from the break provision itself, and you will need to look at the clauses in the Lease relating to service of notice.
As well as ensuring that notice is served in the correct manner and in accordance with the terms of the Lease, there are quite often pre-conditions which need to be satisfied in exercising any break provision. Examples of this might be paying a sum of money to the party receiving the break notice by way of penalty or, for the party serving the break notice, an obligation, for example, to put the property into the same state it was as at the date the Lease was entered into. This might be the dismantling of internal partitioning, for example.
Exercising a break clause is usually time specific and it is crucial to ensure that the break clause is exercised fully in accordance with the terms of the Lease. Whether you are a landlord or a tenant exercising the break clause, you would be well advised to contact a member of our team to ensure that you are serving the notice in the correct format.