The pandemic has caused many businesses to re-evaluate their requirements for physical premises. For those who may find themselves with a surplus, now is a good time to review any leases and consider which exit or renegotiation strategies may be available.
Unless your lease is nearing the end of its term, ostensibly the simplest option is to exercise a tenant’s break clause (if you have one). However, this is not always as simple as it may seem and, if this isn’t your area of expertise, we would recommend seeking specialist property litigation advice in good time.
Requirements for serving break notices can be stringent, both in terms of timing and how and where they are served. It is also crucial to identify any preconditions which must be satisfied for the break to be effective. Some break conditions may appear innocuous but can be fatal to the valid exercise of the break, and consequently very costly. Two key conditions to look out for are:
- Vacant possession
There are many instances of cases where tenants have failed to deliver vacant possession, even though the premises were returned free of occupation, because the tenant left items or rubbish behind.
However, a recent case (Capitol Park Leeds v Global Radio Services) turned this on its head and the tenant was found not to have given vacant possession because it had removed too much from the premises, and therefore had not given back the premises as defined in the lease. (Edit, 5 July 2021 – the decision in Capitol Park Leeds v Global Radio Services has now been overturned by the Court of Appeal, where it was found that vacant possession was given, despite the dire state of the premises. The landlord’s remedy would be to seek compensation from the tenant in respect of the state of the premises, but the break itself was effective and the lease had been terminated).
- Payment of rents and other sums due under the lease
If there are any arrears (in some cases whether or not demanded) the break may be inoperative. Often, landlords do not limit this to just payment of the main rent; it can extend to any sum payable under the lease.
A tenant may be left asking (at a very inconvenient time) if this includes insurance and service charge payments, or other payments that haven’t even been demanded.
For those fortunate enough to be at the drafting stage, the RICS Code for Leasing Business Premises is a useful guide for a tenant. It advises that the only pre-conditions to tenants exercising break rights should be that they are up to date with the main rent, give up occupation and leave behind no continuing subleases or occupation by others. Of course, the Code is famously voluntary; however, whilst many landlords do not use it as their starting point, it is becoming harder to argue against Code-compliant conditions where a tenant requests them.
A final word of warning… tenants should always ensure that their break clause includes a requirement for the landlord to re-pay to them any sums paid in advance of the break date, but which relate to a period after the break date. Without such wording, the landlord is not obliged to re-pay these amounts, which can often be considerable, and the Apportionment Act 1870 does not apply to rent payable in advance.
For more information on the article above please contact Amelia Newman.