Businesses warned over break clauses

BUSINESSES in the West Midlands are being advised to prepare carefully and in plenty of time if they want to exercise their option to break their property lease before its term is up.

Commercial property experts at law firm Shakespeares warn that in a bid to minimise ‘early breaks’ some landlords have been refusing such requests simply because the tenant has failed to comply with the precise wording and conditions in the agreement.

In the current market, commercial property landlords are understandably reluctant to release tenants from their lease agreements early because it can be difficult to find a replacement and in the meantime they would need to pay hefty void costs.

Sarah Bradford, solicitor and commercial property expert at Shakespeares’ Birmingham office, said: “It is in landlords’ interests to prevent early breaks where possible and recent case law demonstrates that they are increasingly prepared to use technicalities or non-compliance issues to turn down such requests.

“This is leading to more disputes and businesses seeking to exercise their right to an early break from their lease agreement need to manage the process carefully.”

The recent case of PCE Investors Ltd v Cancer Research UK resulted in the tenant failing to exercise a break option because it failed to pay a full quarter’s rent when it fell due shortly before the break date, even though it related (in part) to a period beyond the break date.

Bradford added: “There is very little margin for error when exercising a break option. Even a minor oversight or trivial error can render a notice invalid.

“The losses suffered by a tenant as a result of its inability to break its lease early can amount to substantial sums in rent and costs of the lease continuing to the end of its contractual term, often for several more years.

“Considering the lease requirements and seeking legal advice early is vital to avoid the costly implications of failing to successfully exercise a break option.”