In the second in our series of articles about break clauses in commercial property leases, we will be looking at one of the many possible pre-conditions to a valid break – ‘rent’ arrears.
Whether you are a landlord or a tenant there may be a variety of reasons why you wish to end a commercial property lease early. To enable this to happen, most leases contain a break clause outlining exactly how this should be done.
It is important for both landlords and tenants to be aware though, for very different reasons, that some break clauses are conditional on payment of rents being up-to-date. If rent arrears exist, and this is a pre-condition of a valid break, any break notice served will not be valid.
It is essential that you read your lease carefully, and if the payment of rents is a pre-condition, please pay particular attention to the definition given to the word ‘rents’.
More often than not ‘rents’ does not simply refer to the principal rent due for the premises. Commercial leases frequently define ‘rents’ as including the principal rent, insurance rent, service charges, VAT and even any interest due.
It is not uncommon for this to catch tenants out. They serve a break notice, making sure all principal rent arrears are cleared and principal rent payments up-to-date, only to find that their break notice is invalid because they had not paid their insurance rent or service charges up-to-date
It’s an easy mistake to make because insurance rent and service charges are not usually demanded before they fall due. A tenant may argue that they had received no invoice for the insurance rent or service charges, but the absence of an invoice doesn’t necessarily mean the payments aren’t due.
The failure to comply with any pre-conditions could be disastrous for a tenant, for example, it could mean that they are tied into the lease for another five years or so, depending on the terms.
For landlords who receive break notices, it is advisable to check all conditions carefully and to be clear about exactly how rent arrears might affect the validity of a notice. If you’ve been served with an invalid break notice, it might result in you retaining your tenant for a little longer!
Break clauses can be tricky and if mishandled have dire consequences. For this reason, it is always wise to seek legal advice to ensure the validity of a break notice served or received.
If you need advice about how to exercise a break clause in a commercial lease or to check the validity of a break notice served on you, call Beswicks Legal on 01782 205000 or email email@example.com
Read the other articles in this series:
Part 1 – What is a break clause and how do you exercise one?
Part 3 – What is meant by material and reasonable compliance?
Part 4 – Vacant possession and break rights
Part 5 – Understanding dilapidations