Oliver FitzGerald, Real Estate Partner, offers some simple, practical tips for commercial tenants who are considering exercising a break option in their lease.
- The first and last rule in exercising a break option is to always consult a solicitor. Exercising a break option is a technical process with various potential pitfalls. Tenants do not necessarily need to consult with the solicitor who acted in the original lease. We can help even where we did not act in the initial lease or where the tenant does not hold the original lease.
- The second rule is to act fast. Contact a solicitor to review the break conditions well in advance of the break option date. Break option notices are nearly always time sensitive. Time will be needed to prepare the break notice, get landlord details and get the notice signed and served.
- Try to collect as much relevant information as is possible about the current landlord including the name and address of the landlord. This will be important for the break notice. It is important to note that the landlord under the lease may well have changed since the lease was granted.
- Break options often contain numerous conditions which the tenant must comply with in order to validly exercise the break option. These conditions should be thoroughly examined. Serving a notice on the landlord is generally the first condition but there are usually others. In some cases, breach of these conditions could invalidate the break option. A solicitor should assist with this analysis.
- The conditions relating to the service of the break option notice on the landlord should be carefully considered. Tenants should consider the mechanics of signing and delivering the break option notice and other required documents to the landlord. Again, a solicitor should be consulted on these matters.
- Sometimes, the break option clause will state that a break penalty, usually a fixed amount, is payable to the landlord and so the conditions should be carefully examined to determine if this is the case. If a penalty is payable, the tenant will have to ensure in advance that they have the requisite funds to meet this penalty. Sometimes payment of the penalty before or with the break option notice will be required.
- Break option conditions should also be carefully examined to determine whether the tenant will be required to repair or reinstate the property to its condition prior to the grant of the lease. If so, the tenant should engage with the landlord early in the process as regards the repairs or reinstatement works to be undertaken and get advice from a solicitor and other professional advisors.
- Often break options will contain a condition requiring the delivery of the original lease or other such documents. The tenant should locate and collect all necessary original documents prior to the service of the break option notice on the landlord.
- Consider if there is any third party in occupation of the property. If so, the tenant should ensure that the third party can be removed from the property by the tenant before the break date or earlier if required. Break options will almost always require the tenant to provide ‘vacant possession’ of the property on the break date.
- Tenants should check if all lease payments, including rent, rates, utilities, insurance and service charges, are up to date. If not, the tenant should check with a solicitor if they need to be paid before the break notice is served or before the break date.
For practical and timely advice on exercising break options, contact a member of our Real Estate team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.
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