This would be a sensible point in time for leases to be reviewed, both by Landlords and Tenants.
While currently parties may be busy agreeing concessions, it is necessary to look beyond the lockdown caused by COVID-19 and to see how the market will have been affected and will continue to be affected when the UK emerges from this crisis.
At the risk of being alarmist, parties need to look to see what happens next when the statutory moratorium on forfeiture, or concessionary arrangements come to an end (although it may well be that both these will need to be extended). There is a possibility that the closure of businesses (while both necessary and regrettable) may have a recessionary effect with operations having to be cut and scaled back by businesses. This will be particularly relevant in the retail and leisure sectors but should be considered by all landlords and tenants. Inevitably it may send many tenants looking to review their leases to clarify whether they have any opportunity to break the terms of the lease and if that is available to them. If they can, no doubt they may seek to exercise the break option to bring the lease to an end, reducing their property cost overheads. They may even be encouraged by the lessons they will have learned from having their employees working remotely from home which may have indicated to businesses the greater flexibility of this and in addition, the need for less business space within the working environment.
It is therefore important for leases to be reviewed to see if break options are available.
It is then necessary to look at the particularities of each break clause. Any conditions attached to a break clause require to be complied with strictly. This is in the very nature of a break clause as it is treated by the courts as being akin to an option. This has been jealously guarded by the Courts with the effect that what might otherwise have been seen merely as technicalities have always been seen as of the utmost importance. Even in the circumstances that will prevail following this crisis, it is unlikely that they would be relaxed by the Courts, although obviously arguments will be made in that regard.
Every break option tends to be different – some are more conditional than others. Increasingly in practice they have become less and less conditional, but it is important to ensure that what conditions there are, are clearly met and advice needs to be taken well in advance of the issue.
There is also the issue of service of notices. Offices may remain closed and obviously it is important to ascertain whether or not there are mandatory service provisions within the break clause itself and if so, how best for the notice to be served. Quite often, service by email has been resisted in the drafting of such clauses in the past and it may be the whole issue of service has to be given some thought in the current circumstances. What is critical is that because of the nature of the break clause, any requirements will have to be strictly followed if the party is to rely on the clause successfully.
If you believe that, as a tenant, you have the benefit of a break option, you should seek to consult with your advisers at the earliest possible opportunity to ensure that there is sufficient time to meet all requirements and ensure that they are strictly adhered to if you are to be able to rely on the break option. It cannot be emphasised enough that it is critical for you to be well-prepared and to take early advice as otherwise the consequences could be extremely damaging and possibly devastating for your business.
For the Landlord receiving a break notice and wishing to resist/challenge it, it is essential to ascertain that the notice served is not defective and has been served in the appropriate manner so as to be effective. It is also essential to take advice for the purpose of ensuring that any conditions in the break notice are strictly adhered to by the tenant.
There is also the issue of whether a dilapidations claim arises on termination of the lease and again, advice should be sought in that regard.
If you are a landlord or tenant and believe that your lease contains a break clause, the effect of which will take place in the relevant near future, please get in touch with our Commercial Real Estate team. we can advise on which course of action to take and ensure that whatever processes have to be taken are taken properly to ensure the effectiveness of your approach.
This article has been produced for general information purposes and further advice should be sought from a professional adviser. Please contact our Commercial Real Estate team at Cleaver Fulton for further advice or information
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.