Break Clauses: a predicament for Landlords

What rights exist to bring a lease to an end before the end of its term?

A break clause confers a tenant, and in some cases the landlord,  a right to terminate the tenancy prior to the fixed period (a break right). Issuing notice of these rights may be subject to restrictions such as compliance with certain conditions, reasonableness and whether the court would find the action just and equitable.

The problem in the current financial climate is that there is increasing pressure on landlords to ensure that tenants do not leave before the end of the lease in order to protect their returns and avoid soaring vacancy rates. It therefore seems that considerable power has shifted towards tenants because they effectively have a stronger standing as they approach a break right and can benefit from either renegotiating new terms of the lease or simply ending it.

Considerations for Tenants and Landlords

Tenants should be careful when serving notice to end a lease especially with regard to complying with conditions on the break notice. Examples of details that should especially be checked are the end date and notice period, who should be served with any notice and any other conditions attached to the break right.

In addition vacant possession must be given to the landlord on the day the lease ends. A recent case MW Trustees Ltd and others v Telular Corporation [2011] has highlighted the potential problems with missing minor details. This concerned a case where a tenant served notice to their landlord but instead sent it to the original landlord’s address and not the current one.

The original landlord responded by email saying the notice ought to be sent to the current landlord as the property had been transferred. The tenant then decided to email a copy of the notice previously served to the original landlord on to the current landlord; the email was acknowledged but a request that the notice should be re addressed and sent to the correct landlord was made. The tenants failed to respond and when the end date approached, the landlords refused to accept the notice arguing that the notice was not properly served because it was incorrectly addressed and as such the lease should continue.

In most cases, the lease would simply continue if the tenant fails to serve notice properly but luckily for the tenants in this case, the court accepted that there was enough correspondence between the two parties that showed the landlord had accepted to put aside the invalidity of the notice.

Landlords on the other hand should be cautious and make sure they do not accept a break notice which would have otherwise been frustrated by the tenant as in the Telular Corporation case. Any condition attached to the break right could frustrate the tenant's right to end the lease if not fulfilled or complied with.

Landlords should consider the various conditions for break right; these can be absolute such as payment of rent or qualified in cases where reasonable compliance with use of property may be considered. It should be noted that a break notice may not necessarily spell the end as it is often a chance to renegotiate terms of a new lease and this may be an opportunity to retain tenants on different terms rather than being faced with the prospect of having a vacant house.

If you would like to discuss any of the issues raised in this article or for advice in this area please contact Melissa Page on 01908 689354 or by email at mpage@geoffreyleaver.com.