09 / 05 / 2017
The Winter 2017 In Counsel featured the first article in our three part series on the issues surrounding surplus premises. It looked at moving on and ending the lease relationship. Often HR professionals and management are nominated to deal with property as well as people. Our articles aim to give a better understanding of some of the issues which can crop up when leaving premises and taking new ones.
Some leases allow tenants to end the lease on notice to the landlord – a “break” notice. This can be on a specified date or dates, or at any time after a certain date.
Break clauses are one of the most contentious parts of leases and it is important to comply with the procedure exactly. If the lease specifies that the break notice must be on blue paper, blue paper must be used. Many tenants have slipped up by sending the notice from the wrong company within the tenant’s group of companies, or by sending the notice to the wrong landlord.
However, following the procedure to the letter is only the start of successfully exercising a break clause. If there are pre-conditions to the break right, these too must be met. There are plenty of traps for the unwary here. For example, the lease might require “all rents” to be paid up to date before the break notice expires. The trap here is that if rent is paid late, the landlord has the right to charge interest on the late payment – and that interest is often a type of rent. Historic late payments of rent could have created liability for relatively small sums of interest. That interest might need to be paid in order for the break to be successful, whether or not it’s actually been demanded.
Worse still for a tenant is an obligation to have complied with the tenant’s covenants in the lease (or a variation such as “materially complied” or all “substantive” covenants). The issue here is the repairing obligation, highlighted in “the end of leases” . Tenants have come a cropper with a break clause by trying to leave the premises in good repair, but then discovering the works over-ran the programme. And there’s no obligation on the landlord to co-operate either. In a falling property market, some landlords will use every trick in the book to keep their tenants on the hook and paying rent for as long as possible.
When considering breaking a lease, the most important thing is to plan, plan, plan ahead. If the procedure isn’t properly followed, the tenant company could be liable for another five years’ rent or more, so it’s worth taking advice on what’s required.
If you have issues around leases please do get in touch with your usual Wedlake Bell contact or Suzanne Gill in the Commercial Property team.
The first article of the series can be assessed here. The final article in this property focussed series will appear in the Summer 2017 In Counsel.
For further information please contact Suzanne Gill at firstname.lastname@example.org