Checking the breaks: what to do when you receive a break notice
Given the current state of the UK high street, it comes as little surprise that many tenants are looking at their leases and considering their options. Many businesses are scaling back their operations. This can leave landlords in an unwanted situation whereby their tenants are looking to exercise a break clause in the lease agreement.
It is important to remember that exercising a break clause is a complicated legal matter; a tenant must satisfy various obstacles for a break clause to be validly exercised. It is worth considering some of the common obstacles in detail.
The importance of serving the notice correctly
The law stresses the importance of correct service and in many cases, a tenant will fail to comply with the necessary formalities.
One issue is whether the notice has been served on the correct party. Only the party who holds the legal estate in the lease can exercise the break clause. Furthermore, if the notice is served on the incorrect party it will be invalid. Letters to estate agents and solicitors will not be sufficient.
The lease itself will set out the correct procedure for exercising the break clause. This includes the dates by which notification must be served. It is not uncommon to see tenants serving their notices a day late. Regardless, any notice served outside of the stipulated timescale will be invalid. Conversely, if too much notice is given this can invalidate the notice, however, it is worth noting that the law is less certain on this point.
Another pitfall involves tenants failing to use the correct method of service. If the lease document specifies a way of serving the notice, this must be complied with because it is viewed as a mandatory requirement. For example, if a lease specified delivery personally but in fact, the notice was delivered by post, this would invalidate that notice.
The importance of complying with the break clause
As highlighted above, break clauses are strictly interpreted and any obligations should be followed in detail. It is common for there to be several pre-conditions, which can be absolute or qualified.
An absolute condition will prevent a tenant from exercising their right to the break clause if it has not been met. These can be very onerous for the tenant. A stark illustration of this can be seen in a case where a tenant served a break notice on their landlord. However, they were unable to do so because the property had been painted before the beginning of the last year; the lease stated that it needed to be painted within the last year. It is also common to have conditions meaning that if a break notice is served midway through a rental quarter then all rent due up until the end of it must be paid, even though the lease would have expired before.
A qualified condition is somewhat more subjective and means in essence that the tenant must have complied with their obligations so as to be substantially, materially or reasonably fulfilled.
So, what should you do as the landlord?
If you receive a break notice, you should consider your options before replying to your tenant. As you will by now appreciate, this is a technical area of law and the notice may be invalid. Just because you have been served with a break notice does not mean that your tenant is entitled to end the lease, and as you can see, you may be able to reject the notice and keep your tenant (for a bit longer).
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. For advice, get in touch with your usual Greenwoods GRM contact or scroll down to complete our enquiry form.