To Break or Not to Break.

In the current economic climate the ability to break a Lease before the contractual term expires is something of great value to a Tenant.

Having managed to negotiate a break clause into the Lease, why is it then that many Tenants fall into the trap of failing to exercise the break clause properly so that the Lease continues and the benefit of the break clause is lost? 

What follows gives a flavour of some of the pitfalls that the Tenant will face.

When?

The Lease will specify that the Tenant must give notice of not less than a particular period of time when the Tenant seeks to break by serving its notice.

This is of crucial importance because if any time limit is not strictly observed, even by the smallest of margins, the break notice will be invalid.

Planning is the key. Know the date, make the decision and the rest should fall into place. Delay and the problems might begin. 

Who?

Of course another of the more basic aspects of serving a break notice is who it should be served upon.

Although ordinarily the Lease will clearly state that the notice should be served on the Landlord there is case law that deals with notices that have been served on the managing agent. In those circumstances the key question is whether the managing agent had authority to accept service. If the Landlord has confirmed this to the Tenant then service on the managing agent is valid.

If that is not the case then the Tenant's position becomes more difficult. There is some case law to suggest that a managing agent would have general authority to receive notices relating to a Landlord's property.

However it is more likely that the Tenant would need to demonstrate that the Landlord had conducted itself in such a way as to entitle the Tenant to treat the managing agent as the Landlord's agent for the purposes of serving the notice.

The better solution would have been to have served the Landlord in the first place. 

How?

The Lease will also normally set out how the break notice should be served.

It should not be particularly difficult to ensure that the prescribed means of serving the notice is complied with.  It is quite normal for multiple versions to be served by registered post, recorded delivery or by hand to try and ensure that insofar as one attempt at service is invalid one of the other attempts will succeed. In a recent case a Judge suggested that if a notice was to be served by hand then this would require a face to face delivery as opposed to posting the notice by hand through the Landlord's letterbox.

Clearly this would be an extremely harsh approach to take against a Tenant who had served by posting a notice through a Landlord's letter box but at the same time gives a clear indication of the potential perils of serving a notice by one of the prescribed means where other means of service were available. 

Problems and Defects?

Another favourite in break notice case law is the problem of the notice which contains a defect in its wording.

The most commonly argued defence in that circumstance is what is known as the Mannai defence. This is basically where the Tenant will say that the intended effect of the notice would have been perfectly clear to any reasonable recipient of the notice such that notwithstanding the defect the break notice should still be valid.

Clearly the courts favour a commercially sensible construction of the break notice when read against the Lease and the standard of the reasonable recipient is generally hostile to technical interpretations such as the ones that Landlords often take when considering break notices that contain a defect.

Another common argument is what is known as the covering letter defence. As the name suggests a defect in the notice itself might be cured by a reference made elsewhere in the notice or in the covering letter which encloses the notice. For instance the omission of a signature on a break notice might be cured by a signature on an accompanying letter.

More Hurdles?

If a break notice has been served validly, what then? Can the Tenant relax and do nothing? The answer is a resounding "No".

Most break clauses will be conditional and will require that as at the break date the rent is paid up to date. If other monies are reserved as rent then those sums must also be paid. Some break clauses are conditional upon the premises being in repair at the break date and if that is the case then detailed advice will be required as to what works will be required to meet the obligation.

Most will also require vacant possession to be provided at the break date. All of these points and more need to be considered and addressed to try to avoid the break being invalid or creating uncertainty which the Landlord may then seek to exploit.

Concluding comments?

What should be taken from this article?

The simple lesson to be learned is to read and comply with the Lease.

The alternative is the prospect of becoming involved in time consuming and expensive litigation. In the current climate there are bound to be more and more Tenants who will want to exercise a break and in turn more Landlords who will want to try to hang onto the Tenant to avoid a rental void. Watch this space.   

Disclaimer - This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice.   This article is intended only to highlight general issues or changes in the law which might be of interest to our clients and contacts.  

25.03.2009