Posted by Caroline Preist, Partner
Break clause in a commercial lease: you must comply
The break clause is a useful tool, allowing flexibility to end your lease early if your plans change or things do not work out. However break clauses almost always have strings attached, many of which are onerous for tenants.
Background to the case
In a recent Court of Appeal case, the tenant (M&S) tried to claim back rent it had paid for the period after the break date. The lease required all the rent to be paid up to date if M&S wanted to rely on the break clause, so as they approached the break date M&S paid the full quarter’s rent in advance even though it was clear the lease would end mid-way through that quarter.
The landlord later refused to apportion and repay the ‘overpaid’ rent which related to the period after the lease had ended.
The Court’s decision
The Court refused to allow M&S to recover the extra rent it had paid, saying that if the tenant wanted to recover the extra amount, it should have ensured the lease said this when it was prepared.
M&S could have made an apportionment itself and paid a lower amount covering only the last days leading up to the break date. However, this would risk the landlord arguing M&S had not complied with the break clause requirements, which could have left M&S unable to end the lease early.
What does this mean for tenants?
The consequences of not complying with all the requirements of a break clause are serious: the tenant could be left stuck with the lease. In tough economic times, many landlords have relied on technical arguments to insist their existing tenants stay on, to avoid being left with empty premises.
Other common examples of break clause obligations tenants must comply with are:
• to pay a break premium, often by a specific date;
• to give advance notice in a specific way and by a specific date, usually at least 6 months ahead. Doing it wrong or missing this date means you could lose the chance to end the lease early;
• to give vacant possession on the break date. This means empty of all tenants’ people and belongings, and to have returned the keys;
• to have complied with all the tenants’ covenants in the lease. This can be very difficult to do, as it requires the tenant to return the property fully repaired and decorated.
If you are thinking of exercising a break clause in your lease, you should check what the lease obliges you to do well in advance. You should follow the requirements very carefully, and if in any doubt, take legal advice.
If you need advice about a break clause, or any other aspect of your lease, contact our Property Disputes team on 0800 923 2070 or email firstname.lastname@example.org
Commercial property and premises are a vital part of most businesses.