Exercising Break Clauses During Covid-19
Published 26 May 2020. By Lynsey Henderson.
Following the Northern Ireland Executive’s publication of their plan for recovery following the coronavirus lockdown, many businesses may now be considering reviewing their lease arrangements.
Up until this point, many landlords and tenants have been working with each other and negotiating rent concessions during the lockdown, however, many businesses will now be looking to the future with a view to how the market and their sectors may be affected once restrictions are eased following this unprecedented crisis.
Realistically, some businesses may come to the conclusion that regretfully, it is no longer viable to continue their business in its current form. Now, may therefore be the time, for tenants in particular to review their current leases, to see if there is an opportunity to break the terms of their current lease and in turn reduce their property overheads and liabilities.
A break clause is simply an option to determine the lease at an agreed point in time, prior to the end of the lease term. Each break clause within a lease is different and each lease needs to be considered on its own merit. Frequently, break clauses have several conditions attached, which are required to be strictly complied with. Time is often of the essence when it comes to the conditions attached to break clauses and it is likely that even in the current situation, compliance with the conditions will be of the utmost importance in order for there to be a valid determination of the lease. We are in unchartered territory at present, and whilst there will inevitably be many arguments as to reasonableness in these situations, it is prudent to follow the terms strictly in order to avoid further legal proceedings down the line.
Practically speaking, it is important that any party wishing to determine the lease, review the terms of a break clause in plenty of time in order to clearly identify what needs to be done and in which time frame. Often written notices will need to be served, and with many businesses still closed, it will be important to identify how these terms may be complied with.
If as a tenant, you wish to rely on the break option within your lease, you should consult with a solicitor at the earliest opportunity to ensure that you can successfully adhere to any terms attached and for assistance in relation to the service of any break notices that may need to be served.
Alternatively, if you are a landlord and you receive a break notice and you wish to challenge it, it is equally important that you consult with your solicitor as soon as possible in order to ascertain whether the terms of the break clause have been sufficiently met. Furthermore, you may wish to consider whether any dilapidation claims need to be made following the termination of the lease.
If you would like to discuss any matter relating to your commercial lease, please contact a member of our Commercial Property team at MKB Law.
This article is for general guidance only and should not be regarded as a substitute for professional legal advice.