Landlords wanting to exercise a break clause in a lease can face obstacles if the tenant has a right to renew its lease under the Landlord and Tenant Act 1954. This can have a knock on effect on a landlord's future plans for a property, such as redevelopment.
A commercial tenant will automatically have a right to renew unless this right is specifically excluded at the time of the grant of the lease. If not excluded, a tenant will have a right to remain in possession of the property after the lease is terminated – even where this termination is pursuant to the exercise of a landlord's break right. In these circumstances the Landlord, if it wants to regain possession, must still satisfy one of the statutory grounds for opposing a lease renewal set out in the 1954 Act.
When agreeing terms for a new lease, if there is to be a landlord break clause, be alert to ensuring that the tenant's rights to renew pursuant to the Landlord and Tenant Act 1954 are excluded under the statutory contracting out procedure.
It is always beneficial to get solicitors involved early to look over heads of terms before these are settled to ensure any pitfalls like this are avoided at the outset of the transaction.