Effecting a lease break can be vital to a tenant’s business plans. There are a vast number of reported cases on the question of whether notices have been validly served. There are many more property lawyers’ files where the operation of a break is challenged. Tenants need to take great care and seek legal advice to ensure they have exercised their break-right correctly. Failure to do so may result in the tenant having to pay rent on a surplus property until lease expiry or until the next break date.
In the most recent case on the subject – Orchard (Developments) Holdings PLC v Reuters Ltd (2009) – some bad luck and an unusual break clause meant that the tenant was bound to its lease for a further five years.
- The bad luck was that the person who served the formal notice on behalf of the tenant posted them through the wrong letterbox!
- The unusual break clause allowed for informal service of notice by fax if receipt was acknowledged. The landlord did not acknowledge receipt until the litigation started.
- The break notice was held by the Court of Appeal not to have been validly served.
What can tenants do to avoid break notice pitfalls?
- Review all of the terms of the lease relevant to the break and the termination of the lease well in advance of the break date. This will be particularly important to check if the break is conditional on any matters – see below.
- Check the notice provisions in detail (again in plenty of time) and comply with all the details
- Check who the landlord is (e.g., by reference to the Land Registry title), and where and how notices may be served. If the investment was sold to an offshore investor, service may be difficult and may take a week or more.
- Never leave any decisions to the very last minute so that there is time to serve a break notice and get confirmation of receipt (re-serving if necessary)
- Take legal advice early as it could save a fortune later. If break clauses are conditional on compliance with, e.g., the tenant’s covenants in the lease, a new set of issues will have to be dealt with.