Breaking and Leaving

Last month, Bexley Beaumont Real Estate Partners Emily Carey and Nicola Wood considered various aspects of commercial leases, including whether they are protected under legislation and how such leases can be brought to an end.

Planning a Lease Exit

What Kind of Lease Do I Have and Why Does It Matter?

Nicola now offers practical advice around exercising a break clause.

While this article is written from the perspective of a commercial tenant, our Real Estate team advises both business tenants and investment landlords across various sectors, including offices, retail, and logistics.

A Signed and Dated Copy

Your lawyer will want to review a full copy of your completed lease, ideally with any agreed schedule of condition attached to it.

Here are some key provisions you can read in advance:

Break Date

Check the lease definitions and the wording of the break clause to make sure that your lease still contains the ability for the tenant to end the lease early - that any break date has not been and gone, and that you still have time to give the requisite notice.

Conditions?

The break clause is likely to contain conditions you need to comply with before you will be able to consider the lease at an end. The break conditions can include making all rent (and other payments) due and possible additional break payments, removing all your belongings and ensuring all occupants vacate on or before the break date, and perhaps also leaving the premises in a certain state and condition – see below.

Rent ‘due’ usually means paying for the full relevant rent period, not just the amount due to the break date. This needs to be checked by your solicitor. Your lease may or may not require the landlord to reimburse overpayments made for the period beyond the break date. Your solicitor will advise.

Schedule of Condition

Most leases will set out how the space is to be handed back - whether the tenant is required to undo any alterations, and/or carry out repairs and decoration required by the lease (‘dilapidations’). These obligations may not be listed in the break clause - they may be described in the tenant’s covenants.

You may have agreed a schedule of condition with your landlord before signing up to the lease, which will help you work out how the space should be left.

You will need a complete copy of the photographs, with any descriptions, discussing your potential liability for dilapidations with a surveyor as soon as you can.

The Right Notice

A break notice should be drafted and served by a lawyer, for peace of mind if nothing else. Once served a notice cannot be withdrawn. Your solicitor will check all the relevant lease requirements for giving notice.

The consequences of serving an invalid notice or wrongly serving a notice that has been drafted correctly can be costly – you may well remain on the hook for the rents and other outgoings payable under the lease for the rest of its term.

Don’t Forget Your Deposit

If you paid a rent deposit when the lease began, remember to claim it back. Ensure your landlord provides a statement showing any interest accrued.

Tips

Break clauses are a potential minefield. All parties should seek independent legal advice in good time, to allow for a full compliance review of the lease with any schedule of condition, and for the preparation and proper service of the break notice. Engaging a surveyor familiar with dilapidations, and a tax adviser to review any tax issues on payments may also be necessary.

To discuss the above, or any commercial leasing matter, please contact a member of our Real Estate or Tax teams, including:

nicolawood@bexleybeaumont.com  |  07359 709259
emilycarey@bexleybeaumont.com  |  07300 927480