When negotiating the terms for a commercial lease, it is attractive for a prospective tenant to have an option to terminate the lease early, explains Mansoor Haroon of Woodfines Solicitors in their monthly column.
This is particularly appealing for those who are embarking on a new business venture. The option to terminate can be for a set date in the future or on a rolling basis.
However, many tenants are not aware that to exercise a break right it can be dependant on them fulfilling certain requirements set by the landlord. A common condition is that the tenant is not in breach of any of the covenants contained in the lease.
Any breach no matter how slight or trivial, can potentially prevent a successful exercise of a break clause by a tenant and they can then be tied in for the remainder of a lengthy lease term. The landlord can refuse to accept the break even if they have never complained about the breach previously.
Another condition that a landlord may require is for any sums due under the lease to be paid before allowing the tenant to terminate the lease. It is important to know that this can include more than just the payment for annual rent. This could include even a day’s interest on a previous late payment which has never even been demanded by the landlord.
Additionally the landlord may want a condition that the property is given back with vacant possession.
This could be meticulous to the point of forgotten belongings or demountable partitions defeating a break right. This also extends to the tenant leaving behind security measures to prevent vandalism.
In order to give vacant possession the tenant must ensure that there are no persons left at the property under a licence or a right to occupy, no furniture is left at the property, and the property is left clean and tidy.
At a time where landlords can struggle to find a new tenant in an ever-risky climate, they are more likely to prevent a tenant from successfully exercising their break rights. It is important to assess future risk before even entering into a lease as failure to comply at a break date would result in the lease continuing until the next break date or the end of the contractual term.
Landlords often request a mutual break clause which can be risky as the Landlord can theoretically take the property back at a date when the tenant’s business is flourishing.
This is especially important where the location of the property attracts high footfall which is imperative to the nature of the business.
The good news is that all the conditions mentioned above can be negotiated to limit the impact and make them more reasonable.
For further advice on agreeing lease terms for new or existing premises, please contact Mansoor Haroon in Woodfines’s Commercial Property Team on firstname.lastname@example.org
In association with Woodfines