Trials and tribulations of exercising a break clause in a commercial lease
It is not uncommon for a commercial lease to contain a break clause in favour of the lessee. However such a break clause will often be drafted conditional upon certain events. The most common being that the lessee will have paid the rents reserved, observed and performed the lessee’s covenants and provided vacant possession.Lessee’s should always be wary and not underestimate the strict nature of a break clause. Courts will strictly construe a break clause and any conditions attached to it.
An example of the break clause being considered was the English case of Avocet Industrial Estates LLP –v- Merol and another (2011). There are numerous other examples. Here the English High Court found that the lessee owed interest of around £130 due to occasional late payment of rental. The court found the lessee to be in default of the terms of the lease and therefore the lessee’s break notice was invalid. The level of interest involved was relatively small, the lessor had not issued a demand for the interest and the Lessor had not utilised a rent deposit that it was also holding by way of security for non-payment of rent.
Whilst there is a Code for Leasing Business Premises in England and Wales 2007 which includes recommendations as to preconditions as to a break clause, these are not compulsory. In Jersey there is no such code. The contractual terms will determine the relationship. It is therefore important to consider taking appropriate legal advice.
If a break clause is to be included in the lease take legal advice to ensure that the terms are fully understood and reasonable.
If you decide to exercise the break clause you must pay close attention to all the requirements of the clause, including the formal requirements, and follow them precisely.
If you are considering exercising a break clause take early advice before you give notice to ensure you haven’t missed anything.
Otherwise you may find the break clause is not valid and that you are contractually obliged to the lease for the remainder of the term.