COVID-19: Breaking up is hard to do. Tenant breaks in a time of lockdown
09 April 2020
With the enforced closure of many businesses, some commercial premises may be surplus to a tenant’s requirements and tenants with break options may be considering exercising them. Even if they are happy to stay put and re-open once lockdown restrictions are lifted, the exercise of a break option may afford tenants an opportunity to re-gear their existing lease terms.
It should be remembered that a lease is a contractual document and case law indicates that requirements relating to the service and exercise of contractual notices will be strictly construed. As such, it is important to take legal advice at the earliest possible opportunity. Key factors to consider are timing, service and conditions attached to the break.
Most break clauses will specify a notice period that must be given to a Landlord before a break notice takes effect. During this COVID-19 lockdown, additional time may need to be factored in for postage/delivery. Most leases have a minimum notice period but few have a maximum notice period so tenants may wish to err on the side of caution and serve notices well before they need to do so. Tenants should however, remember that once validly served a break option cannot be withdrawn, so the decision to exercise a break should only be taken if a tenant is prepared to vacate at the end of the relevant notice period.
Tenants should familiarise themselves with the specific notice provisions in their lease and establish whether they will be able to comply with conditions relating to the service of notices during lockdown. The interruption to postal and other delivery services is just one way in which COVID-19 crisis has presented landlords and tenants alike with a number of practical conundrums in recent weeks. There are often specific procedural stipulations in a lease as to how service is to be effected and if they are not strictly complied with, a notice may be invalid. If a lease specifies a particular mode of service this should be followed and in the present time it may also be sensible to adopt a “belt and braces” approach e.g. if a lease specifies service by recorded delivery, try to effect that service but also send the notice by fax and/or email as well where possible. If COVID-19 restrictions are such that a particular mode of service appears impossible, legal advice should be taken to ascertain if that is, in fact, the case or if an alternative would be possible.
Many tenant break options have conditions attached, such as rent being paid to date, vacant possession being afforded on termination etc. Care should be taken to establish whether the time for the satisfaction of such conditions is at the break date or if they are also linked to the date of service of the break notice. COVID-19 restrictions may make the satisfaction of certain conditions more difficult than usual but it is likely that performance will be strictly construed. For example, a condition relating to vacant possession may still apply even if a tenant has temporarily abandoned its premises as a result of the lock down. Conditions linked to the payment of rent should also be carefully considered and if formal rent concessions have been agreed between the parties during the lockdown it is important that these are properly documented so that the payment of a reduced rent would not invalidate a break option.
If you need any advice in respect of the above or advice on your lease generally, please contact the Real Estate team at Carson McDowell.