This month we are going to focus on one key topic which is proving to be a matter of interest for a number of our commercial property clients; this month's newsletter therefore is going to concentrate on "How to end your commercial lease early with minimal stress".
Whether you want to move on for personal, business development, financial or other reasons, you may need to terminate your commercial lease early. If this is the case, then you should follow certain rules in order to avoid problems with your landlord. Otherwise you may end up being stuck where you are until the end of your lease, lose money, sour relations with your landlord and even face possible legal action.
Understanding your right to break
Whether you are on good terms with your landlord or not, it is important to make sure you leave in the right way. How to end your lease early will depend upon whether you have the right to break.
A break clause allows either the landlord or the tenant to terminate the lease early. The right to break may arise on one or more specified dates or it may be exercisable at any time during the term on a rolling basis. Any conditions attached to the right to break must be strictly performed. In particular, time will be of the essence. Break notices are often the cause of litigation, particularly in the current economic climate. It is crucial therefore to consider the lease and all of its clauses before issuing a break notice. Failure to do so can result in the notice being invalid and you as a tenant missing your opportunity to break the lease.
A true life example
In the recent case of Hotgroup Ltd v The RoyalBank of Scotland PLC [2010], RBS leased parts of a building to Hotgroup. The lease was for a 10 year period but did include a break clause allowing Hotgroup to terminate the lease on 3 July 2010 by giving not less than nine months' prior written notice.
Although legal title in the building was held by RBS they held it as trustee for a unit trust. The unit trust in turn had appointed a property manager called SPIM.The lease set out a break clause with various conditions attaching to the break, including:
"During such period as the reversion to this Lease is vested in the trustee no notice will be deemed to be validly served on the Landlord unless a copy of the notice is also served on SPIM..."
Hotfrog served a break notice on RBS, which was received on 14 September 2009 but no notice was served on SPIM. A copy of the notice was finally served on SPIM on 19 November 2009. RBS argued that unless SPIM was served with notice by 3 October 2009, there was no proper service on the Landlord.
It was decided that the purpose of the clause was to ensure that any notice came to the attention of the person with the actual responsibility for the management of the property and the notice did need to be served on SPIM by 3 October 2009. The attempt to make a meaningful distinction between deemed service and actual service was not supported by the meaning of the words used in the lease.
RBS was entitled to a declaration that the break notice was ineffective.
Comment
In order to comply with a break clause it is always necessary both to comply with the break clause and the prescribed mechanics of giving notice. This means that the entire lease must be read to ensure that the impact of different clauses on the method of serving the break notice must be considered.
This is a clear example of the dangers of reading a break clause in isolation from the rest of the lease.
Further information
Please contact us on 0207 440 2540 to discuss any commercial property matters you may have or drop us a line at enquiries@fortunelaw.com. We are always happy to help.
