Break Clauses – Get it right first time

Many commercial leases include break clauses allowing the tenant to bring the lease to an end before the contractual term ends. These give tenants flexibility from being tied into a long term. In the recent economic downturn tenants have been attempting to exercise break clauses to release themselves from leases with upwards only rent reviews or other obligations that landlords used to be able to impose.

Some of these attempts to escape have come unstuck. Even very minor failures of no commercial value may block a break. There have been many court cases recently about whether or not break clauses have been effectively operated.

This is a high risk area for any business. If you plan to break your lease but don’t get it right you don’t get a second chance. You may be stuck for several more years with an obligation you have decided to get rid of and possibly two sets of premises. For landlords the stakes are equally high;  they and their lawyers will go over any attempt to operate a break clause with a fine toothcomb.

The Code for Leasing Business Premises in England and Wales recommends that the only pre-conditions to a tenant exercising a break clause should be that they are up to date with the main rent, give up occupation and leave behind no continuing sub-leases. In practice many older leases include other pre-conditions which can be a trap for tenants.

Any tenant considering exercising a break clause should plan ahead. The starting point is to look at the lease:

  • When is the break date ?
  • Notice will have to served – often several months in advance. What is the last date on which notice can be served?
  • Is there a specified form for the notice or is there specified information to be given ?
  • What does the lease say about serving notices? Who is to be served? Where ? How?
  • Are there any pre-conditions for exercising the break clause, and at what date do they have to be satisfied?
  • Rent will almost always have to be up to date, but that may include other payments defined in the lease as rent. Have you ever been late paying something and triggered an obligation to pay interest reserved as rent? There has been much litigation about what to do when rent is due for a period which continues beyond the break date. The basic advice is to pay everything that is due and try to get it back afterwards. The loss of a quarter’s rent is far less than being stuck with rent for several more years.
  • Is there an obligation to have complied with all the tenant’s obligations in the lease? At what date? Is that qualified by the word “material”? If not, even minor, previously unnoticed breaches may block compliance. If in doubt comply. Obligations as to the state of the premises on termination may be scattered throughout the lease. Can you identify tenant’s fixtures or alterations which you should remove? Aim to get work done well in advance of the break date and allow a margin for delays. Try to get the landlord to approve them.
  • You must give vacant possession – be very careful to do exactly that. Contractors still on site doing repairs, or even rubbish in the basement, have prevented tenants from meeting this obligation in recent cases.

Unless you are absolutely sure you understand everything you have to do get legal advice, and get it early. Deadlines for break clauses are absolute and if you miss them even the best lawyer in the land won’t be able to help you. You may be able to do a commercial deal, but from a position of weakness. With some other issues it may be possible to litigate whether you have complied or not, but this will be substantially more costly than getting early advice and getting it right first time.

Finally, when taking on new premises look carefully at any break clause – if you can’t make it unconditional, negotiate for it to comply with the Code for Leasing Business Premises.

Clearing snow and ice – is it dangerous?

Of course it is – you might slip over. However, if you are prepared to take that risk and do it sensibly you shouldn’t be deterred from being helping your community by a fear of being sued. There is simple guidance from the government.  If it is your property you may have a liability if you don’t clear it.

The Institution of Occupational Safety and Health, the largest health and safety membership organisation in the world says, “As a general rule it’s sensible for firms to consider the risks and take reasonable steps to prevent accidents from happening. If this means gritting outside the boundaries of your workplace, then it’s better to do that than to have people slipping over or involved in car crashes on your doorstep.”

If you want to assess the risk it’s always worth knowing your enemy. After the 2009 snows a firm of Claimant Personal Injury Solicitors doing the dreaded ‘No Win No Fee’ claims put out a leaflet about snow and ice claims which described the possibility of any claims against people clearing the highway voluntarily as an “urban myth”.

In legal terms there is a theoretical basis for a claim in Negligence, but it would only be sustainable is you created a new risk. Following the government guidance should ensure you don’t. Even if you did the Compensation Act 2006 says that a court may have regard to whether “imposing an obligation to take steps might prevent an activity which is desirable from taking place (either at all, to a particular extent, or in a particular way), or might discourage persons” from activities that were positive. Clearing snow and ice is exactly the kind of activity that is aimed at.

In Frome the Town Council has taken a pro-active approach and has a Snow Patrol.

This post is provides information not legal advice on any particular situation on which you should act.

Contact Neil Howlett or Andy Hambleton

Residential Tenancy Deposits – Avoid Expensive Mistakes

Landlords of residential tenants could be forgiven for being confused about what they have to do to meet the requirements of the Tenancy Deposit Scheme.   When the original statutory scheme was introduced it was then undermined by cases which allowed landlords to virtually ignore it.   Some landlords and agents have got into the habit of ignoring the 30 day limit in the belief that they could put things right later.   That isn’t what Parliament intended, and the courts will not allow it in the future.

Landlords of residential tenants must now do all of the following within 30 days of the start of the tenancy:-

  • Protect the deposit, usually by putting it into one of the tenancy deposit schemes.
  • Serve a notice containing prescribed information, which includes the details of the scheme, how it can be contacted, and what the landlord may deduct from the deposit, plus, usually, the leaflet provided by the scheme.

There are serious penalties for landlords who do not comply.   If the landlord does not serve the notice on time, the court can order the landlord to pay the tenant a penalty of up to three times of the amount of the deposit.   The Court of Appeal has recently ordered a landlord to do that, and that case will be binding on the lower courts.  Landlords who miss that deadline must assume that the starting point will be that they will pay three times the deposit as a penalty.

If the Landlord has not protected the deposit in time the consequences are potentially more expensive.   Any s.21 Notice Requiring Possession is ineffective, as are any possession proceedings based on it.   That cannot be put right later unless and until the Landlord has paid the deposit back to the tenant and then served another Notice.   As a s.21 Notice normally has to give at least two months notice, that can seriously delay the ability of a landlord to get rid of a bad tenant.   Bad tenants are why landlords take deposits. If a Landlord starts possession proceedings based on a defective notice, they will not get possession, be ordered to pay a penalty and the tenant’s legal costs, and will have to start all over again – without the benefit of a deposit.

If you are considering letting residential property please contact Kathryn Lander.

If you have a problem with a residential tenancy please contact Neil Howlett or Andy Hambleton.