Break clauses are used by both landlords and tenants to end a commercial property lease early. However, they can be problematic.
In my third blog on break clauses, I will be looking at how the phrases and terminology used in a lease can lead to confusion and disagreement.
When a break clause is exercised and the process started to end a commercial property lease, a tenant will usually be required to return the premises to an agreed state.
When describing what this state should be, many leases use words such as ‘material’ or ‘reasonable’ which can be open to interpretation and, where there is a lack of clarity or certainty about what is required, disagreement and litigation can result.
For example, a tenant might be required to ‘materially’ comply with the terms of the lease for a break clause to be operated, but what exactly does this mean?
The word ‘material’ in the legal sense means relevant or significant, as opposed to of minor importance or irrelevant.
When looking at the conditions of a break clause, ‘materiality’ is usually measured by the landlord’s ability to relet or sell the property without incurring additional expenditure or delays. It is less concerned with very minor issues.
If the terms of your lease talk about ‘reasonable’ compliance this means that during the tenancy the tenant should have behaved as a ‘reasonably minded’ tenant might behave. This wording is more forgiving if the terms of the lease haven’t been followed to the letter, for example in relation to decoration or hours of business.
The fact is that break clauses and any conditions attached to them are extremely strict. The wording in them must be reviewed and interpreted carefully to ensure a valid break that does not result in a dispute between landlord and tenant.
If you need assistance to ensure a lease is drafted correctly, need advice about the material and reasonable compliance, how to exercise a break clause or are concerned that a break may be invalid, get in touch with our dispute resolution team on 01782 205000 or email firstname.lastname@example.org
Read the other articles in this series:
Part 4 – Vacant possession and break rights
Part 5 – Understanding dilapidations