Break Clauses in Commercial Leases

A recently reported case highlights the need to take care to follow the instructions set out in a lease if you want to serve a valid break notice.

A lease had been granted in 1999 for 25 years, but the tenant could serve a break notice in 2013, and that was what the tenant decided to do. There were some conditions that had to be met before the tenant could serve notice, and the tenant ensured that it had complied with those, but then did not reproduce the exact wording required for a break notice specified by the lease. The landlord used this as the basis for refusing to accept the break had been validly exercised and the case ended up in Court.

There was no scope to misunderstand the notice that was served by the tenant, and the landlord did not suggest that it was not clear, but the lease said that the notice should say that it was given under “section 24(2) of the Landlord and Tenant Act 1954” and those words were not included.

The requirement to include those exact words was in the lease because in 1999 there was uncertainty about whether a tenant could exercise a break clause to end a contractual lease, and then immediately apply under the 1954 Act for a new one. Referring to S 24 (2) in a notice prevented that happening, but in any event, shortly after the lease was completed another case made it clear that a tenant could not invoke a break clause and then apply for a statutory renewal anyway, so the wording was legally unnecessary.

In this case the Court decided that even though the lease said the wording was essential to a valid beak notice, since it was legally meaningless and everyone involved understood exactly what was happening it did not matter that it was omitted from the break notice so the landlord had to accept that the tenant had ended the lease. But it was a very time consuming, expensive and worrying way of finding that out, when all that had been needed was the addition of a few words to the original notice.

In the present market landlords are not finding it easy to re-let commercial property and will be looking to see if they can reject a break notice. Tenants will also be more keen to exercise break clauses in difficult trading conditions. As each case depends on the exact wording of the break clause in question it is essential that you seek speacialist legal advice well in advance.

For more information on break clauses and leases in general, contact the head of our commercial department and recognised lease expert, Gillian Jones.


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