When exercising a break clause, the terms of the clause must be strictly adhered to in order for the party to successfully end the lease. Failure to do so may jeopardise the success of the break.
The procedure for serving the notice set out in the lease must be strictly complied with. The method of service in particular must match that required in the lease - for example an obligation that the notice must be sent to the landlord’s registered office even if you usually correspond with a local office. Care should also be taken to serve the notice on all parties who comprise the landlord or tenant in each case.
Tenants will be unable to exercise a break clause if any pre-conditions have not been performed – usually at the break date but sometimes also on the service of the break notice.
If these are absolute conditions, the payment of rent for instance, then they must be observed no matter how trivial. The definition of rent often includes additional payments and recent case law has highlighted the significance of outstanding payments under the lease particularly payment of service charge or insurance, even if they may only have fallen due on the break date.
A tenant is also often required to pay sums that fall due even if they relate to the period after the break date. A tenant should ensure that the clause is drafted to allow them to claim this back following the break.
To properly exercise a break vacant possession will often need to be given. The tenant must ensure that it can comply with this condition before the break date. Failure to do so, even if it is only rubbish bags that remain, could mean the exercise of the break has been unsuccessful.
Conditions may also be qualified so that the tenant is required to have “materially” or “reasonably” complied with its obligations - for example that there is to be no material breach of the terms of the lease. This adds subjectivity into the exercise of the break and the uncertainty often leads to dispute.
There are a number of factors that both parties need to consider dependent on who is exercising the break clause. Both parties must comply with all relevant requirements and protect their position by keeping evidence of compliance.