Commercial property - what to do if you receive a break notice from your tenants
What to do if you receive a break notice from your tenants.
If you’re a commercial property landlord and your tenant chooses to exercise their break clause, you must follow the correct process. Let’s find out more.
Due to the Coronavirus pandemic, many landlords have found themselves in the unenviable position of receiving break notices from their commercial property tenants. Retail tenants are uncertain whether their businesses are still viable, while many companies that lease offices have found that they can function perfectly well with everyone working from home. It creates a challenging situation for landlords, who also have to make money and satisfy shareholders.
In this article, we’ll look in more depth at break notices. There is a process to follow when you receive one, and we’ll go through it here.
What is a break notice?
A break notice (or break clause, or option) is a term in a lease that allows either the landlord or the tenant to end the lease before the end of its stated period.
It is intended to be a safety net for both sides. A business tenant avoids being tied into a contract that they cannot meet if their fortunes change, while the landlord will find it easier to get rid of a troublesome tenant.
However, in difficult economic times, like we are experiencing now, most landlords will regard receiving a break notice as a piece of bad news.
What to do if you receive a break notice
There are three matters you need to consider when the break notice arrives:
Has your tenant served the notice correctly?
Do they need to do anything after serving the notice?
Do you need to do anything?
Have they served the notice correctly?
The first thing you need to work out is whether your tenant has served the notice correctly. If they have, then you can proceed to the next stage. If they haven’t, their break notice may be invalid and you need to decide what to do next.
Here are some questions you need to answer:
Have they served the break notice according to the terms of your lease?
Have they served it in the right way? – Your lease may say they need to serve a notice by hand, or registered mail, for example.
When did they serve the break notice? – Your lease may set out specific times when tenants can serve notice. Serving outside of those times may not be covered.
What date does the notice specify as the end of the tenancy?
Has the tenant given you enough notice as per the terms of the lease?
Has the tenant satisfied any other conditions in the lease that are relevant to the break? For example, if they are in rent arrears, they may not be able to serve notice.
If after answering these questions, you are sure the break notice is valid, you need to act to cover your interests, such as starting to look for new tenants. However, you must also think about what to do next regarding the current tenants and their lease.
Do your tenants need to do anything else?
In the terms of your lease, your tenant may be expected to perform certain duties before they vacate your property. These could include repairing wear and tear on the property, even restoring it to the same state it was in when they found it. There may also be payments they need to make.
If it is in the lease, it is up to you to enforce these terms.
At this stage, it is optimal to keep an open dialogue with your tenants, even if it is tempting to never speak to them again! There is no need to make life difficult for them. There may even be a way to negotiate a way for them to stay. Valid break clauses cannot be withdrawn, but it is possible to draw up a new lease with new terms.
Do you need to do anything?
Again, your next move may be dictated by the terms of your lease. If the contract states that you have to provide services such as repair or reinstatement, you must organise it.
It is wise to think of how the break will affect your business moving forward. Perhaps your tenant exercising their break clause isn’t a disaster at all. If you already have established, high-paying tenants lining up to view your property, you may be able to come out ahead.
Find out more from Couchman Hanson
If you’re a commercial property landlord looking for expert legal services, it’s time to talk to Couchman Hanson.
At Couchman Hanson, our solicitors genuinely care about getting the best outcome for you. We’re highly professional, with ‘city’ level talent and experience, but also friendly and welcoming. Everything we do fits our values of integrity, honesty and authenticity.
If you would like to find out more, call Couchman Hanson on 01428 722189 or email enquiries@couchmanhanson.co.uk