It is little wonder that many companies have been left struggling after the devastating effects of the Covid-19 pandemic, followed closely by the effects of the war in the Ukraine and the ongoing cost of living crisis.
At times like these, companies that can no longer afford the rents for their commercial units may well be looking at ways to exit their leases. This obviously leaves commercial landlords in a predicament, as they naturally want to avoid having empty units which are not earning them any income.
As both parties in the landlord/tenant relationship seek to protect their business interests, we are likely to continue to see instances where one party seeks to exercise a break option.
What is a break option?
A break option is the contractual right for one party to terminate a lease early, normally on a specified date. The party only has one opportunity to exercise the break option, which will usually need to meet conditions specified in break clauses laid out in the lease. If the specified conditions are not met the break fails and the lease continues for the previously agreed duration.
As landlords are often keen to keep their tenants and continue to earn the income on the lease, it is common for them to carefully scrutinise the tenant’s adherence to these conditions, as even failing to meet a single one in time could cause the break option to fail.
Common break conditions
While there are many different break conditions, we are only going to focus on a couple of common examples in this blog.
The vacant possession break condition is extremely common and requires that the tenant returns the premises in a condition whereby the landlord can immediately enjoy exclusive possession, occupation and control of the property. If the tenants leaves behind anything that hinders this, for instance furniture or equipment that the landlord would have to clear prior to being able to make use of the premises, this could easily result in the break option failing.
A variation of this condition can include fixtures and fittings, so tenants need to make sure that any fixtures and fittings they have installed are removed, but only if this does not then subsequently mean the landlord cannot immediately rent out the property to a new tenant.
It may seem like an obvious one, but conditions around when payments are to be made, including any possible break premiums, need to be carefully adhered to. Not paying arears or other required payments on time is a sure fire way to stop a break option from completing successfully. This will often include things like interest that is owed and the rent for any started rental periods, for example where the break option is exercised between rent payment days.
Serving a break notice
In the vast majority of cases, written notice needs to be served when a party wishes to exercise their break option. Adhering to the specified timings and methods this notice needs to be served is vital to the successful exercising of the break option. For instance, checking who the notice needs to be served to and in what format (e.g. letter or email) and following the conditions laid out in the lease becomes critical.
Always involve a professional
Exercising a break option can be difficult, with the different conditions that may exist in the lease. We believe it is therefore always advisable to involve an expert to help ensure a successful and amicable break.
Instructing a solicitor to help navigate the break conditions set forth in the lease can help avoid possible pitfalls and also aid in negotiating a surrender should the break option fail.
The Building Surveying team here at AWH have extensive experience in assessing work which may be needed prior to the surrender of the property as well as facilitating communication between the two parties.
If you are considering exercising a break option and would like to speak to a member of our expert Building Surveying team, please call us on 0800 071 5517 or email firstname.lastname@example.org.