Serving a break notice to end a lease early is common in the world of commercial leasing, but it is imperative that a valid break notice is served. Otherwise, the tenant could remain liable to pay the rent until the end of the lease.
Who must the break notice be served on?
You might think this is obvious, but a tenant always needs to look at the landlord named on their lease document, the land registry title to see who owns the landlord’s interest, and finally, the most recent rent demand to ensure that it is the same party named on the lease, recorded as the owner at HM Land Registry, and demanding and accepting rent. If there are differences, serving the notice on multiple parties may be necessary.
How much notice has to be given?
This will always depend on the break clause in the relevant lease. Six or twelve-month notice periods are common, but it is imperative to ensure that the required notice period is given.
How should the break notice be served?
Again, the lease usually includes a clause that sets out how any break notice must be served. It is vitally important that you serve the break notice in accordance with the lease provisions because a failure to do so could mean that the break is invalid.
Caselaw on break notices is littered with instances of tenants failing to serve valid notices because they didn’t abide by terms set out in the lease about how the notice should be served. If it says it has to be printed on blue paper, the paper must be blue; pink paper will not suffice.
Pre-conditions of serving a break notice
You need to pay very particular attention to the terms of the break clause and whether or not any pre-conditions have to be complied with before a valid break notice can be served or by the break date. Specifically, look out for any conditions that might require the premises to be in repair or any penalty that has to be paid, either at the date of serving the break notice or before the break date itself.
A failure to comply with any pre-conditions of the break clause may invalidate the break.
Vacating the premises on or before the break date
Even if the break clause does not expressly state that vacant possession of the property has to be given, this is implied. As a tenant, you will have to make sure that you have fully emptied the property of all goods belonging to the tenant and that no items are left behind, which could allow the landlord to argue that the break notice is invalid.
Early arrangements should also be made with the landlord to return the keys. This means all sets of keys the tenant holds should be delivered on or before the break date, not afterwards. Again, any late return of the keys could invalidate the break.
Payments due under the lease
It is common for break clauses to require the tenant to have paid all sums due under the lease in full up to the break date.
If any payments due under the lease have been made late during the lease term, the tenant should calculate how much interest may be payable on late payments and tender and pay that amount to the landlord before the break date, again to avoid any argument that the tenant has not complied with the lease terms and that the break is invalid.
Attention should also be paid to whether or not there are any outstanding rent reviews due under the lease.
The condition of the premises on the break date
Most commercial leases do not require the tenant to return the property in a full state of repair as a pre-condition for ending the lease early.
Most leases will, however, contain a general obligation on the tenant to give back the property in repair and therefore, if a tenant serves a valid break notice that does not require them to give back the property in repair as a pre-condition but returns the property in a state and condition that does not comply with the repair covenants in the lease, the landlord can still pursue the tenant for damages for terminal dilapidations, even after the break date.
Apportionment of rent
Nowadays, it is common for landlords to agree to return any rent that may be due to the tenant for any period after the break date when leases are being negotiated. If these express provisions are not included in the lease, then the tenant is not automatically entitled to have any overpayment of rent refunded to them.
My break date is mid-quarter. Do I have to pay a full quarter's rent?
Unless the lease contains express terms authorising the tenant to only tender rent up to the break date if a break notice has been served, then the tenant should always tender the full quarters’ rent to ensure their break notice is valid.
Tenants should not fall into a trap whereby they receive a demand for rent from the landlord for the last quarter that only invoices them up until the break date and only pays them up until that date. It is much better to have overpaid rent than to find that the break notice is invalid because the tenant has failed to comply with the lease terms and pay the full quarter’s rent.
Summary
Preparing and serving a break notice is fraught with difficulties and traps for a tenant, and a well-advised tenant would always instruct a solicitor to prepare and serve the break notice on their behalf.
Before serving a break notice, a tenant needs to properly understand their obligations, both before the notice is served and as of the break date. Failure to serve a valid break notice could have dire financial consequences for a tenant, especially if they have signed up to new premises elsewhere and then end up with two rental liabilities.
