Break Notices, also known as Break Clauses or break options, are important contractual provisions which allow either a landlord or tenant to bring a lease to an early end.
These provisions are extremely common – but deceptively complex and landlords and tenants alike often fail to give them the thought they require.
From the tenant’s perspective, a properly drafted Break Clause gives them the opportunity to avoid being tied into a lease that they can no longer afford. This is a precious safety-net for a tenant – particularly if they are just starting out.
Understandably though, a landlord who is receiving a steady rental stream may be reluctant to lose a tenant, particularly in tough economic times.
The landlord therefore often has a vested interest in making life difficult for a tenant seeking to exercise its break option.
Whilst the Code for Leasing Business Premises in England and Wales 2007 (the Code) seeks to promote fairness by recommending that breaks are made subject to fair conditions – as we will see in the examples below, these recommendations are seldom heeded:
Adhering to conditions of the Break Clause
Defeat of Break for Minor Breaches of Covenant
Break Notices are akin to options and are therefore strictly construed by the courts. The case of Bairstow Eves (Securities) Ltd v Ripley demonstrates what has been described as “absolute rigidity”.
In this case, for the Break Clause to be valid, the tenant was required to have adhered to all of its covenants in the lease. The lease required the tenant to paint the property in the last year of the lease.
The tenant did indeed paint the property, but just before the last year. Even this trivial breach was deemed sufficient to defeat the break.
It is crucial when taking a lease that a tenant understands that the conditions of the Break Clause can easily defeat option to break unless followed to the letter. A properly advised tenant should refuse any condition, other than up-to date payment of principal rent and giving up occupation.
Defeat of Break for Invalid Notice
Assuming a party is able to comply with the conditions of the Break Clause – they would be well advised to seek legal advice before serving the notice exercising their option to break – as the case of Capital Land Holdings Ltd v Secretary of State for the Environment  SCLR 75 illustrates:
In this case, the lease stated that notices were to be sent to the landlords registered office. In the event, the tenant served the Break Notice on the landlord’s place of business. The Break Notice was deemed to have been ineffective.
Whether or not the landlord actually receives the notice is irrelevant, it seems!
Parties should therefore ensure that their notices are served at the correct place and in the correct form to avoid any issues arising regarding their validity. Legal advice should be sought before serving any notices to avoid such ambiguities.
Personal Break Clauses
Problems can also arise with personal Break Clauses. These are Break Clauses which are drafted with the intention of being exercised by the original tenant to the lease and not their successors in title. This is particularly relevant to any party taking an assignment of a lease who could effectively lose the right to break the lease without realising.
Under these circumstances, the tenant may want to consider taking an underlease as opposed to an assignment in order to preserve their right to exercise the break.
Issues even if the Break is effective
Even if a tenant’s break notice is uncontested – there can still be issues to watch out for…
No Refund of Rent Paid for a Period beyond the Break Date
Marks and Spencer Plc v BNP Paribas Securities Services Trust Company Limited and another is an important case relating to the payment of rent in situations where the break date falls between rent payment dates in the lease. This means that rent could have been paid for a period extending beyond the break date.
In this recent case M&S successfully exercised its right to break several Leases. It later claimed a refund from its landlord of part of the last quarter’s rent on the basis that this was attributable to the period falling after the break date.
M&S’s claim failed. It was held that unless the Break Clause clearly states that a refund would be due in these circumstances – rent payments relating to the period after the break date should not be refunded to the tenant.
This position was recently upheld by the Supreme Court.
Accidental Waivers – cautionary tales for Landlords
The pit falls are not all to the detriment of just the Tenant however.
It is common for Landlords, who would otherwise prefer to keep their tenant – to waive a requirement to comply with a condition and accept a Break Notice when they were under no obligation to so.
Acceptance of a Break Notice can be made in writing, orally and it can also be inferred by conduct.
It is important for landlords to quickly take legal advice upon receipt of a Break Notice – particularly if they would rather not accept the break!
Other issues to look out for:
Withdrawal of a Break Notice
Once given, a Break Notice cannot be withdrawn. Any mutual agreement to a Break Notice being withdrawn is considered to be a surrender of the original Lease and the creation of a new Lease on identical terms.
Landlords and Tenants alike should be extremely careful before accepting the withdrawal of a Break Notice and should always take legal advice before doing so. The surrender and re-grant of a Lease, whilst on identical terms, can still have major ramifications on the security of tenure provisions under the Landlord and Tenant Act 1954 and in respect of any Guarantors guaranteeing the Tenant’s covenants under the Lease.
It is clear that Break Clauses can be of major benefit – but it is an important provision that needs careful consideration at the negotiation stage and at the point of being exercised. Given what’s at stake, extra care must be taken when drafting such notices and parties should ensure that they take legal advice at the outset of the creation of a new Lease.
By ensuring that the Break Clause is code-compliant – parties are likely to save themselves significant costs and avoidable headaches which could arise down the line.
Attwells Solicitors will ensure that your Break Clause is drafted in a way that benefits your circumstances. If you are already bound by a lease and want to serve a Break Notice – Attwells will make sure that it is served correctly.