Tenant break options are nowadays popular and for good reason – most businesses value flexibility and they want to avoid long-term commitments to stay in commercial leases. Whilst leases of 10 years or longer are not uncommon, the majority of those will include tenant only break options at the end of either 3 or 5 years.
There are, though, a host of traps for the unwary tenants wanting to exercise break options. Some of these we have written about before on our website, often giving our readers goosebumps by citing the grim consequences for those businesses unable to exercise the option. These traps include:
• the importance of serving notices in the correct manner; a letter written to the local landlord manager is unlikely to be sufficient
• ensuring that the notice is sent to the correct landlord; this may not be the person named in the rental invoices or as described in the original lease
• ensuring the correct amount of rent has been paid as at the tenant break option date; any underpayment and the tenant risks losing the ability to exercise the break option
A recent court case of the High Court in England, Goldman Sachs International v (1) Procession House Trustee Ltd on 3 May this year, has highlighted a further potential trap. In this decision the court had to decide whether a tenant should be allowed the benefit of its break option where the tenant had left the property but failed to remove tenant fit-out works. The landlord promptly claimed the tenant break option to be invalid because although the tenant had paid all rent to date and given up occupation, it had failed to comply with a condition attached to exercise of the break option, namely the removal of the fit-out works.
Fortunately for the tenant, on this occasion the court decided to “give them a break” by interpreting the specific wording in the lease in their favour. It was, though, a very close call for the tenants and the landlord has been given leave to appeal.
The all important lesson for tenants wanting to exercise break clauses is clear: not only should they make sure the tenant break notice is served properly but they must ensure that they comply with the terms of the lease. Giving up possession of premises can sometimes mean more than just leaving. In some leases tenants may require to remove fit-out works and alterations such as internal partitioning, reception desks, lifting equipment in industrial units or disabled access ramps. In other leases, however, the tenants may be prohibited from removing fit-out works or alterations unless the landlord specifically directs them to do so. Each lease varies and needs to be read carefully. It pays to do so review the lease carefully rather than to risk an expensive dispute with landlords.
If you would like advice in this area please get in touch either myself (firstname.lastname@example.org) or one of our other solicitors in our property team.
Michael Dewar, Partner