Leases for Business Premises – The Pitfalls of Early Termination

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24-06-2011

In this month’s Legal Question Time we look at leases for business premises and some termination clauses which may catch you out.

It is tough taking a lease of business premises at the best of times but now it has got a whole lot worse.  Signing up to pay rent for premises for years to come when current uncertainty dictates that one should keep as flexible as possible just increases the pressure on the would be tenant.

Landlords are also having a tough time and will be more open to proposals put to them by potential tenants in order to secure a letting.  One such proposal could be the insertion in the proposed lease of a break clause, giving the tenant the ability to bring the lease to an end early should the need arise.

Such a clause usually provides that the tenant may end the lease early by giving to written notice to the landlord.  However these clauses are usually made subject to conditions; for example that all rents due under the lease be paid before the lease is brought to an end.  All of these conditions must be strictly observed if the tenant is going to be able to end the lease.  Unfortunately there are many pitfalls to catch the unwary when trying to end a lease and a landlord may well exploit to the full any slip which the tenant may make in exercising the clause to prevent the lease ending.

Recently I was consulted by a tenant who had sought to end his lease in such circumstances.  He had written to the landlord giving him notice of his intention to determine the lease.  The premises were already vacant and he had decorated them in anticipation of his departure, as was required under the lease.  However the lease stated that the rent was to be paid by equal quarterly instalments in advance on the usual quarter days and that before the tenant could break the lease, all rent must be paid up to date.  The tenant proposed ending the lease in mid quarter and therefore, quite reasonably, asked the landlord to provide an apportioned rent demand calculated the date on which the tenant proposed to end the lease.

The landlord ignored the request and, when the tenant sought to hand back the keys, the landlord refused to accept them, claiming that the lease could not be broken as the rent had not been paid, and that therefore the lease would continue for the remainder of the term, which was another five years.

The tenant argued that landlord was to blame for the non-payment of rent as he had not supplied the apportioned rent demand, as requested.  Unfortunately for the tenant, as the lease required the rent had to be paid quarterly in advance, he should have paid the full quarter’s rent, ignoring the proposed early termination of the lease.  His failure to do this lost him the right to end the lease and committed him to five years further rent.

If you are going to exercise a break clause you would be well advised to consult a solicitor and discuss with him what steps you must take to validly exercise the break clause and what else you must do to ensure that the landlord cannot refuse to accept such termination.

To discuss any of these issues in more detail, you can contact our Commercial Property team.


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