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Time to take a Break

Gateley Legal

Service of a notice to break a lease should be handled with precision and clarity. 

Break clauses are among the most commercially negotiated provisions appearing in any set of heads of terms. Their inclusion (or exclusion) can dictate the annual rental value, the mechanisms for rent review and the attractiveness of premises to a prospective tenant or a purchaser of the landlord’s property which will take subject to the lease and which will benefit of the rental income.

But beware the devil in the detail. A recent High Court decision [1] is a startling reminder that understanding what can go wrong is key to getting a break notice right. Here are some common pitfalls which show that, if there is any doubt as to how to serve notice, legal advice should be sought:

When can the notice be served?

Leases will often state that a notice must be served an agreed number of months at least before the Break Date, which will be defined in the lease. This gives the option holder the flexibility to deliver the break any time before this date. Look out for: requirements to serve the notice on a specific date (e.g. 6 months before the Break Date) – unless the notice is served correctly and on the specific day (and no earlier), the opposite party may argue that notice was not served correctly.

Where can the notice be served? Leases should set out the notice needs to be delivered in accordance with the notice provisions of the lease and any specific notice provisions relating to the break. Legislation may also be implied into the notice provisions [2], however case law has shown [3] that express provisions, e.g. that a notice should be served on the Landlord’s registered office, must be complied with.

How can the notice be served?

Leases should set out the form of notice, which will usually be in writing. Look out for: set forms of notice appended to the original lease – if a set form is appended, it must be used.

Who can serve the notice?

A lease will state whether the landlord, tenant, or either party may serve the notice. Look out for: whether a break right is personal – this right cannot be exercised by any assignee of the tenant or purchaser of the landlord’s interest. 

Also look out for – security of tenure provisions. If a Landlord is seeking to exercise a break option in a lease that has the benefit of security of tenure under the Landlord and Tenant Act 1954, the statutory procedure to end a lease must be undertaken, which involves the service of a notice in prescribed form that specifies the grounds on which the Landlord is seeking to take possession of the premises (which may include developing the premises or the landlord wishing to occupy the premises themselves).

Recent case law [4] has also reiterated that the entity serving the notice must clearly be the party with the benefit of the break right, which may need clarification where complicated corporate structures are used.

Are there further conditions to be complied with?

There is likely to be a period between the service of the notice and the break date (typically 3-6 months). During this time, the owner of the break right will need to be sure that it is complying with the terms of the break – this is typically the ongoing payment of rent and materially complying with obligations under the lease however an outgoing tenant should also be aware of how they are required to leave the premises, including the level of repair and condition.

And, as we blogged about in December last year , tenants should be conscious that rent paid in advance will not be recoverable unless there are specific provisions in the lease.

With the number of elements that need to be considered to effectively execute the break, service of a break notice should not be taken lightly and legal advice should be sought to help ensure that this is achieved.

[1] Vanquish properties (UK) Ltd v Brook Street (UK) Ltd [2016] EWHC 1508 (Ch)

[2] inc s196 of the Law of Property Act 1925, s23 of the Landlord and Tenant Act 1927 or s1139 of the Companies Act 2006

[3] Capital Land Holdings Ltd v Secretary of State for the Environment [1996] SCLR 75 AND Claire’s Accessories v Kensington High Street Associates [2001] PLSCS 112

[4] Vanquish properties (UK) Ltd v Brook Street (UK) Ltd [2016] EWHC 1508 (Ch)

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