What is a break clause?
Break clauses are contractual provisions in a lease that allow either the landlord or tenant to bring the contractual term of the lease to an end early.
On the face of it, a break notice appears to be a straightforward document, and it often looks easy to exercise. However, failure to exercise a break correctly can have significant consequences; our Property Litigation solicitors explore how to do so correctly.
On the face of it, a break notice appears to be a straightforward document, and it often looks easy to exercise. However, failure to exercise a break correctly can have significant consequences; our Property Litigation solicitors explore how to do so correctly.
The lease usually states that one party must give the other written notice before the break date.
Whilst there can be a rolling break provision, the break date is more often on a fixed date, and failure to exercise the break provision properly will result in the lease continuing for the remainder of the term.
This could be a further 5 or 10 years of rental payments, which may be a significant sum of money.
It is, therefore, not surprising that these matters often end up in Court, particularly in a market where rents are going down, and tenants want to exit the property because they are paying over the odds in rent.
A break clause will specify when it can be activated, how to activate it, how much notice must be given and who can use it (e.g. landlord or tenant).
A break clause can be helpful for a tenant as it can provide flexibility to change location of the business, and it can prevent a tenant being locked in a long lease unnecessarily.
It can also be beneficial to a landlord in circumstances when the landlord would like to sell, renovate or re-lease the property.
Potential Issues to Avoid
There are a number of issues that any party looking to exercise a break should be aware of. These include:
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A break clause can only be exercised by the legal owner of the property. A beneficial owner cannot exercise a break clause but can ask the legal owner to do so on their behalf. This is important if the interest in the property has recently been transferred but not registered at HM Land Registry. This was seen in the case of Sackville UK Property Select II (GP) No.1 Ltd v Robertson Taylor Insurance Brokers Ltd [2018], where an assignee served a break notice but was not the registered proprietor and could not demonstrate the notice had been served as agent for the original tenant who was still the registered owner.
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Once a break notice has been served, it cannot be unilaterally withdrawn.
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The provisions of the lease must be strictly adhered to to ensure the break notice is valid. In the case of Siemens Hearing Instruments Ltd v Friends Life Ltd [2014], the break clause states that “…notice must be expressed to be given under section 24(2) of the Landlord and Tenant Act 1954”. The break notices did not use these words and instead said, “We…HEREBY GIVE YOU NOTICE…that the Tenant intends to terminate the Lease on 23 August 2013 in accordance with clause 19 of the Lease so that the Lease will determine on that date.” The break notice was held by the Court to be invalid.
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Making sure that the notice is served in accordance with the terms of the lease. In Capital Land Holdings Ltd v Secretary of State for the Environment [1996], the notice was sent to the landlord’s place of business, but the lease said the notices to the landlord must be sent to the registered office address. The Court held that the notice provisions in the lease were mandatory rather than permissive, so the break notice was ineffective because it had been incorrectly served.
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Ensuring the break conditions are complied with. In Avocet Industrial Estates LLP v Merol Ltd and another [2011], it was a condition of the break that the tenant made all payments due by the break date. The tenant failed to pay a small amount (around £130) of default interest and even though the landlord had not demanded this, the break was held to be invalid.
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In Bairstow Eves (Securities) Ltd v Ripley [1992], the lease states that the property was to be painted in the final year. The tenant painted it just before the start of the final year. This lack of compliance meant the break was invalid.
There are many more examples where break notices have not been exercised correctly.
Common conditions attached to a break clause
A break clause can contain conditions that need to be satisfied by the break date for the break option to be effective.
Some common conditions include:
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The tenant must have paid all rent, service charges and any other sums owed under the lease up to the break date.
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There must be no breaches of any obligations under the lease (although these are quite rare now). Any existing breaches of the lease can prevent a break notice from being effective. This may include repair obligations.
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The tenant must leave the property completely empty, with no fixtures, fittings or other goods remaining.
Checklist for tenants exercising break clauses
It is apparent from the above that a tenant seeking to exercise a break must ensure that his ‘house is in order’ at the earliest opportunity. The following checklist is useful to remember:
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The break clause should be examined in detail at the earliest opportunity so that the tenant is aware of what it has to do.
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The tenant should be aware of when the notice should be served and what the requirements are.
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Ensure that the notice is checked thoroughly and that the tenant knows who and where it is serving the notice. The tenant should not be reliant on historical information. Furthermore, if the tenant is serving the notice on an agent ensure that the agent has express authority to accept service.
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What is required if the tenant needs to comply with the terms of the break provision? Are there any outstanding breaches?
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The tenant should allow itself ample time to carry out any works and hand back the premises with vacant possession.
Tips for Tenants
A tenant who is considering exercising a break must ensure they have their ‘ducks in a row’ at the earliest opportunity.
Some useful top tips include:
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The break clause should be reviewed in detail as soon as possible so that the tenant is aware of the process they must follow.
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The tenant must be aware of when the notice should served.
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The notice should be checked thoroughly and served on the correct party using the correct method (as set out in the lease). The tenant should not rely on historical addresses. If the tenant is serving the notice on an agent, ensure the agent has express authority to accept service.
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Review whether there are any conditions attached to the break.
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Review whether there are any breaches of the lease which will prevent the break from being effective.
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The tenant should allow plenty of time to carry out any works to the property to return it to the landlord with vacant possession.
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Instruct a solicitor at the outset to review the lease and break clause.
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Once a break notice has been served, it cannot be unilaterally withdrawn.
If a break notice is served incorrectly or is deemed to be invalid, it will not be effective, and therefore, this may have a big impact on the landlord/tenant. It is therefore very important to obtain legal advice at the earliest possible opportunity.
Contact Our Property Litigation Solicitors
If you have any more questions or would like more information regarding Break Clauses, you can contact our Property Litigation Solicitors below.
0161 941 4000
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Karen Taylor
Legal Director
Karen has specialist expertise in lease renewals, breaks and forfeiture actions, claims for rent and service charge arrears and disputes arising from alienation and dilapidations issues.
About Karen Taylor