Two legal cases have highlighted the need for commercial tenants to take prompt professional advice when lease break clauses are due to come into effect. In both cases, tenants lost out when rulings went against them.
Significant penalties for commercial tenants
Danielle Sheppard, Director in our Lease Advisory team comments: “A recent High Court judgement ruled that a commercial tenant was locked into a £190,000 a year lease after failing to activate a break clause successfully. The tenant – a finance company – didn’t realise that the break notice was invalid as they had not paid the full quarter rent due. In another case a nationally known logistics company lost the ability to break a lease when work on dilapidations ran over past the break date without the landlord’s permission. Both of these cases cost the tenant dearly.”
Seek early advice and avoid pitfalls
Danielle adds: "Early advice in regard to any lease event is crucial. Taking advice up to three years in advance of a lease expiry or a break clause can ensure that opportunities and issues are spotted. It may be quite possible to renegotiate the terms of a lease ahead of a break clause. A landlord will be aware of the risk attached to a break or lease expiry and may be willing to enter into early negotiations, maybe offering reduced rent in return for the removal of a break clause or a lease extension.”
Potential for substantial costs savings
Our lease re-structuring team regularly advises clients on opportunities to help save substantial amounts of money, even when they have been locked into an over-rented lease for a number of years.
“We have been working with a number of large property-occupying clients and have successfully delivered savings to them. These include lease restructuring projects and negotiating better terms and rent free periods in exchange for extended lease commitments. It’s definitely worth a conversation to avoid pitfalls and make sure opportunities are not missed.”