Serving break notices: Common mistakes made by tenants

Thursday 21 October 2021

A break option is an extremely common yet deceptively complex provision in a commercial lease. They allow either party, or both parties the option to terminate the lease before the end of the lease term on giving notice to do so. This option can arise on specific dates or may be exercisable at any time during the lease term on a rolling basis. 

With home working and online retail remaining as popular as it was during the pandemic, tenants may be looking to reduce their office space or the number of stores from which they operate, therefore exercising break rights is becoming increasingly common.

It is crucial that a tenant complies with the requirements provided by the lease when exercising and serving a break notice. Failure to do so can result in the continuation of the lease until the end of the term or the next break date, which can be costly.

Service

The lease will set out how and when notice should be served on the Landlord. The two key dates the tenant should ascertain are:

1. The break date; and
2. The date by which notice must be served.

If any dates are miscounted, there is a risk that the break notice will not be validly served and the lease will continue. The notice must also be served using the exact methodology specified in the lease. If the landlord requires the notice to be on pink paper for example, this must be complied with.

Once notice has been validly served the tenant should ensure the other terms of the lease are fully complied with, in particular those which are a requirement of the break option.

Rent

It is a common condition that the annual rent must be paid up to date to validly exercise a break.  Unless expressly stated in the lease, rent cannot be apportioned up to the break date and a tenant may be required to pay the rent due for the full month, quarter or year (depending on the rent payment dates agreed in the lease) in order to comply with the terms of the lease.  It is also good practice for tenants to ensure that other payments such as insurance premiums or service charges are paid up to date.

Vacant possession

Break clauses often contain a condition that vacant possession must be given on the break date. This means that the property should be free of occupation (including from any third parties such as undertenants, workmen or even trespassers) and clear of the tenants’ belongings. This requirement can lead to disputes where items have been left behind even where these are insignificant.

Dilapidations

Finally, a tenant should consider the repair or reinstatement provisions in their lease or consider whether there is a dilapidations claim which will arise. It is useful to ensure that ample time is left before the break date to address any issues that might arise.

We recommend that tenants considering exercising their break clause seek advice to ensure notice is properly served and executed.

If you require assistance with the exercise or review of break clauses, please email or call our Commercial Property team today on 0113 207 0000.