In this edition, Shanna Davison explains whether a tenant can be required to remove alterations when there is no time left at the end of a lease whilst Dellah Gilbert clarifies whether you can withdraw a break clause once it has been served.
Q: My lease is due to expire in a week and the yield up clause requires me to “remove all alterations or additions made during the term and reinstate the premises to their prior state and condition if reasonably required by the landlord”. I have just received such notice from the landlord, but there is no time to carry out the works before lease expiry. Do I still have to comply with this obligation?
A: As long as the landlord gives notice before the lease expires, it will trigger the reinstatement obligation even if it is served on the final day of the lease. This was the decision reached by the court in Scottish Mutual Assurance Society Ltd v British Telecommunications plc (unreported). As the tenant did not have enough time to complete the works before the end of the term, the court in that case suggested that the landlord must grant a licence to the tenant to carry out the works after the expiry of the lease. However, the decision has been criticised for leading to uncertainty: What should the terms of the licence be? Should rent be payable? What if the landlord already has a new tenant lined up?
The alternative argument, which has not yet come before the court, is that there is an implied term that notice must be served within a reasonable period before the end of the lease. The Code for Leasing Business Premises suggests that notices should be served at least 6 months before expiry. However, until the court considers the issue afresh, tenants would be well advised to check their landlord’s requirements early enough to enable them to carry out the works before expiry.
Q: I am a tenant under a lease which has a break clause. I served the break notice as I was worried about continuing in the premises but trade has now picked up and I wish to stay. I have discussed this with my landlord who is willing. The simplest thing for me to do is simply to withdraw the break notice or ignore it. Will that cause any problems?
A: Unfortunately it’s not quite as easy as turning a blind eye to the notice. There are issues where the tenant has served a break notice and it effectively wishes to withdraw that break notice or waive it. Case law says that it is not enough to simply try and withdraw the break notice. Once served, the notice stands. This means that any agreement to “withdraw” it in fact creates a new lease.
You didn’t say whether there were preconditions to the break clause being effective. Usually there are and will typically include paying the rent in full and giving vacant possession. An alternative and popular method of getting around the problem, once the notice has been served, is for the tenant to deliberately fail to comply with one of the preconditions such as not moving out of the premises. The risk of doing this, however, is that the landlord may waive the requirement to comply with the preconditions and so you could end up having to leave anyway.
A better way is for the parties to enter into a deed in which the tenant agrees he will not comply with the preconditions and the landlord agrees he will not waive compliance with any. This will work to effectively nullify the break option but other waivers e.g. withdrawing the notice will not. Any guarantor would need to sign up to the deed but the good news is that HMRC would not consider that a new lease has been granted so no additional SDLT would be payable.
