Break Clauses – The Importance of Negotiation

A break clause is a provision in a lease which enables either the landlord or the tenant, or both, under specified circumstances, to terminate the lease before its normal termination date. In today’s competitive market, business tenants and landlords want to quite rightly protect themselves by having some flexibility in their lease.
Pre-conditions when exercising a break clause
The Code for Leasing Business Premises in England and Wales 2007 (Lease Code 2007) recommends that the only pre-conditions to tenants exercising any break clauses should be that they are up to date with the main rent, give up occupation and leave behind no continuing subleases.
However, in addition to the above, the break clause may specify further pre-conditions. Therefore, when negotiating a break clause in a lease or seeking to exercise an existing break clause, you should ensure that you fully understand any pre-conditions that are stipulated as they must be strictly performed.
The significance of Marks & Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015]
In the above case, Marks and Spencer’s had a lease whereby a rent of £290,000 was payable. Marks and Spencer’s had a right to break the lease on 24 January 2012 by giving six months’ notice. The notice would only be effective if there were no arrears of rent on that date and if Marks and Spencer’s had paid a break penalty fee. Both conditions were satisfied and therefore the break was effective.
However, following the break date Marks and Spencer’s claimed that the rent paid for the period between 25 December 2012 and 24 March 2012 (remember the break date was 24 January 2012 and therefore mid quarter) should be apportioned and the over payment reimbursed to them.
The court ultimately found that if there is no express provision in the lease providing for a reimbursement of rent, the tenant (Marks and Spencer’s) will not be entitled to such.
Therefore, when negotiating the pre-conditions of the break clause a point to be considered is whether the lease provides for rent relating to the period after the break date to be refunded to the tenant. Unfortunately, Marks and Spencer’s did not consider this point and as a result, suffered significant financial loss.

How can Askews help you?

Askews Legal LLP has a dedicated team of Property specialists who can assist with any commercial property issues. For further advice or to obtain a quote, please contact Kuljeet Sandhu, Head of Commercial Property or Pritpal Chahal Solicitor and Practice Manager  at Askews Legal LLP
E: ksandhu@askewslegal.co

E: pchahal@askewslegal.co

T: 024 76 231000

Askews Legal LLP – Solicitors Coventry.