In our previous blogs looking at financial pitfalls in leases we explored financial traps for tenants resulting from the rent review process, service charge liability, and dilapidations claims. In this third blog, we explore the lesser considered financial liability relating to your break right.
A lease for five years or more often gives the tenant a right to terminate the lease early, usually every three to five years. Often, quite deliberately, this coincides with rent review dates.
Successful operation of the break right will depend on strict compliance with certain break conditions. Usually these relate to giving formal notice to the landlord, full payment of rent, and giving back possession of the premises to the landlord. The details of these break conditions can be subject to some negotiation, but ultimately some level of conditionality will remain; the landlord will not want to make it too easy for a tenant to leave it with a premature void at its science park.
Any failure to comply with these conditions may result in the break right not being validly exercised, despite your intentions and even if the failure was minor. If there is sufficient time to correct the error, then you should do so. For example, if notice was served to the landlord at the wrong address (e.g. to the science park manager’s office instead of the landlord’s registered address), you should serve a new notice to the correct address if the time limit for sending the notice has not expired.
However, if insufficient time remains to correct the failure and the landlord does not waive the error, the lease will carry on and you will continue to be responsible for performing your lease covenants (including paying rent and service charge) until the end of the term or, if there is one, the next break date. Worse, if there is a rent review date following the break date (commonly the day immediately following), your financial liabilities might actually increase.
Whilst some negotiation of the conditions is common, ultimately the question will be whether you complied with the conditions and not whether your failure to comply was material. If you are considering exercising your break right, speak to a solicitor at least three months before the date on which the break notice needs to be served. This will give them sufficient time to review and advise you in respect of the conditions as well as to prepare and serve the break notice in compliance with the lease (e.g. to the right person, at the right address, by the right method, within the correct period of time, containing the correct details etc).
On the flip side, you should note that a break notice is irrevocable; you cannot (validly) serve it and then change your mind if you are unable to find suitable accommodation at another science park. The landlord might permit you to change your mind, but the lease will still terminate on the break date, so the landlord might quite reasonably require you to enter into a new lease, potentially increasing your overall financial exposure (e.g. the rent might increase, the term might be lengthened and/or the landlord may want you to pay its costs for the new lease).