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Can my business walk away from its lease early? Can my business walk away from its lease early?

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Nov 13

Can my business walk away from its lease early?

Written by Alasdair Inglis
Head of Commercial Property

DDI: 01423 724618
M: 07712 395532
E: alasdair.inglis@raworths.co.uk

Many tenants like to include what is called a break clause in their lease.  Such a clause provides tenants with flexibility since they can either allow the lease to run its full term or exercise a right to end the lease early on one or more possible dates during the term.

If the tenant wants to bring its lease to an end on an agreed date he or she must let the landlord know in accordance with the procedure set out in the lease.  If the landlord wants the tenant out, then no doubt it will be amenable, but if the tenant is a good one, the landlord may look at ways in which to defeat the break being exercised.

On the face of it, this may seem strange.  Why would a landlord want to preserve a tenancy with a party who didn’t want to be there?  The reason is that the landlord will be interested in securing the income stream through the rent he receives.  If the tenant is good, the landlord can be fairly confident of an assured income for the rest of the term of the lease; but if a tenant breaks the lease, the landlord loses his income and has to find a new tenant .

But how can break clauses be defeated in practice?  The answer is that ordinarily pre-conditions are placed in the lease on the operation of the break. If the pre-conditions are not strictly satisfied the break may fail.   A lease may contain a number of pre-conditions such as the tenant must have paid the rent (and other payments due) or that the tenant must have performed the covenants in the lease.

I have come across a number of examples.

In one case, a break clause which required the tenant to make ALL payments due by the break date failed because the tenant owed the landlord some interest for a previous late payment. The landlord had not demanded the interest, but nonetheless, the break failed.

In another case, a tenant was required to paint the premises in the last year of the term.  It carried out the painting just before the last year and although there was no practical difference in the standard of decoration at the end of the term, because the terms of the lease had not been strictly complied with, the break failed.

It must follow that conditions attaching to a break clause should be carefully considered at the time that the right to break is exercised and thereafter.  It is also important to consider the terms of the break clause when the lease is negotiated at the outset.

For further assistance, please telephone 01423 566666, visit our office at Eton House, 89 Station Parade, Harrogate HG1 1HF, or alternatively e-mail Alasdair.inglis@raworths.co.uk

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