There is a growing trend for tenants to seek to exercise the break option within their leases in order to terminate their occupation early due to the demand for physical office space becoming increasingly unclear, together with the current economic uncertainties.
If, as a landlord, you receive a notice purporting to exercise a break option for your premises, you should consider the following:
1. Has the notice been validly served in accordance with the terms of the lease? Consideration should be given to where the notice was sent (i.e. to the correct landlord and/or office as stipulated in the lease), how was the notice served (does the lease specify a particular method of service such as by hand?) and when was the notice served (does the lease have any particular provisions regarding the date of deemed service?)
2. Does the notice specify the correct break date? This may be easy to assess if an exact date is specified in the lease but may not be so clear if it is expressed as an anniversary of the term commencement date.
3. Has the notice been served with sufficient notice prior to the break date as per the terms of the lease? This will need to be considered alongside the method of service and any deeming provisions relating to the time of service.
4. Are there any conditions within the lease which the tenant must comply with before they can serve the break notice? For example, it may be a requirement that a tenant must have paid the rent up to date before serving the break notice and this may need to be considered alongside any rent concession granted.
5. If the notice has been validly served, are there any conditions within the lease which the tenant must comply with to ensure that the break option is effectively exercised on the break date? For example, it may be a requirement that the tenant must provide vacant possession and/or make a payment to you as the landlord.
6. If the notice has been validly served, what is the tenant hoping to commercially achieve by serving the break notice? Is the tenant wanting to vacate the premises or is it actually an attempt to negotiate a new lease on more favourable terms? You should bear in mind that a validly served break notice cannot be withdrawn and, as such, if the tenant wishes to remain in occupation, a new lease must be entered into.
7. Are there any requirements upon you as a landlord? For example, you may have to provide an updated service charge demand a certain number of days before the break date. You should diarise any dates appropriately.
8. You should consider the dilapidations clause and any yielding up provisions within the lease. What do they say regarding the timing of any dilapidations claims? If you require the tenant to reinstate the premises, you may need to serve a notice of reinstatement so many months prior to the break date.
9. Last, but not least, what is your commercial position in relation to the premises? This may have a bearing upon how you deal with the break notice and the tenant moving forward.