Are you the tenant of a commercial property? Is your lease due to expire soon? Are you planning to terminate your lease? If so, be aware of the following issues.
The terms of a break clause can be negotiated between two parties when entering into a lease and can often amount to a deal-breaker. Break provisions allow either the landlord, tenant or both parties to end the term of a lease prematurely by serving notice on the other.
Before a tenant can determine a lease by exercising their break clause they will most likely be under an obligation to pay all rent owed and to ensure they are not in breach of other covenants in the lease. If the tenant fails to comply with these conditions then the landlord could be entitled to prevent the tenant from determining the lease early. This is where potential disputes can arise and litigation is pursued. Our commercial property solicitors are able to advise and resolve disputes for both landlords and tenants regarding break clauses.
Break Notice
The implications of the exercise of a break clause are very significant financially. If the Notice is defective in any way as to its format or service, then the Break Notice will be invalid, and the tenant will be fixed with the obligations for the remainder of the lease term, typically a further 5 years. Great care must be taken with the drafting and giving of the Notice.
The lease can specify how the Notice is served as to the address. There are frequently a number of different alternative addresses that could potentially be used, failure to use the correct address can be fatal. Tenants also need to be able to prove service. This is a particular requirement. Frequently, Notices might well be sent to the correct address, but if one cannot prove this and the landlord denies receipt, the Break Notice will fail.
Care must be taken with the drafting and giving of the notice as there are strict requirements and non-compliance could invalidate the notice. This, in turn, could lead to you missing the ‘break date’ and losing the ability to terminate the lease.
Stamp Duty
If your lease has expired but you are still in occupation of the property, you must notify HM Revenue & Customs that your lease has expired within 30 days of it having expired and pay any stamp duty within that 30 day period. Failure to do so may lead to penalties.
