Tenant & Landlord Breaks:
A break clause is common to both private residential leases and commercial leases, therefore it is highly advisable that both landlords and tenants are familiar with the nature of the break clause in their lease and understand their rights therein.
It is important to note that not all leases will include a break clause, and in certain circumstances the break clauses are drafted to be highly favourable to one party. A break clause is ultimately the right to ‘break’ the lease and terminate the agreement. The break may arise on a specified date, or if the lease is a rolling contract then it is often permitted on a given period of time.
Commercial Tenancy Breaks
For commercial leases, the Code for Leasing Business Premises in England and Wales 2007’ is a useful document for anyone involved with commercial property. The Code recommends that the only pre-conditions for a tenant wishing to exercise a break clause is that they are up to date with rent, give up occupation and leave behind no continuing sub-leases.
The Code further states that disputes regarding the state of the premises should be settled once the tenant has vacated the property. This is to try and prevent landlords from using a pretext as to the state of the premises to disallow the tenant from breaking the lease. However, the break clause can be drafted to implement its own conditions.
It is important for landlords who take on the task of drafting a lease themselves to seek legal advice regarding the incorporation of a break clause. Break clauses require careful drafting and can be detrimental to either the landlord or tenants’ rights dependent on the nature of the lease.
The landlord to tenant relationship can often be strained which paves the way for grounds for disputes to easily arise. A common cause for a dispute is in the event that the tenant wishes to vacate the premises at an earlier date than perhaps first intended. This often arises with commercial leases, a location for a business can be of paramount importance to its success.
Circumstances can arise which mean that the location of the premises, the subject of the lease, is no longer suitable, and a business may wish to acquire new premises. If the lease does not provide a break clause, then it is advisable for the business owner to contact a property litigation solicitor and seek advice. If, however the lease does provide a break clause then the lessee may be able to exercise its use effectively.
The alternative to the above is in the circumstances when the break clause permits the landlord to break. These are often highly beneficial to the landlord if they are experiencing ongoing difficulties with a current tenant. A landlord wishing to exercise the break right should seek the legal advice of an experience property solicitor.
The break clause will incorporate a break date which could be in terms of the following;
1) A rolling break meaning that the lease can be terminated at any time.
2) That the lease can be terminated at any time after a specified date. The tenant will usually be afforded with a minimum period of occupation before they can exercise the break.
3) The lease can be terminated on an agreed fixed date. The fixed date will usually coincide with the rent review date. This can be of benefit to the tenant if the landlord imposes an increase to the rent, as it allows them to break the lease with no penalties incurred.
Residential Tenancy Breaks
If the landlord foresees the likelihood of his needing to terminate the tenancy, then by far the simplest strategy is to set up the tenancy for six months. The tenancy will continue after the expiry of that fixed term as a periodic tenancy. The Landlord can terminate it with absolute certainty, subject to giving notice as the law requires. The tenant has a similar right.
It follows that if the landlord grants a residential tenancy for a longer term, he will want to exercise a break provision only in the event of something unexpected. It follows too that a tenant will insist on a longer term only if he has a good reason, before the agreement is signed, to require the continuity of a longer term. For example, the bread winner will be working abroad and wants his family to be secure while he is away.
All this means that in a residential tenancy, if a break provision is exercised, it is very likely that the other party will be inconvenienced, perhaps severely.
However, a break clause is a common law right. There is no statutory support for a person exercising it. So, if the other party wishes to oppose it, he can go to the County Court (perhaps with Legal Aid?) and provide whatever defence his solicitor can dream up. What is more, judges tend to favour tenants in a residential tenancy. Children will not be thrown out. For that reason, a break provision is not a safe route.
It follows that if the tenant needs a long-term agreement, he should never agree to a break provision in that term, and a landlord should of course insist on a six month deal because it simply gives him the option anyway to get the tenant out on 2 months’ notice.
If one side needs continuity but the other will not give it, a compromise may be to line up a new AST starting, for example, one month before the expiry of the first one. Then the original can be terminated by exchange of letters on the day that the new one takes effect.
Subject to that, there is no problem with a break clause after six months. If so, it should be included as a two-way option. One-way break clauses favouring either party are deemed “unfair” and are likely to be unenforceable. See the guidance originally published by the Office of Fair Trading (OFT) and now adopted by the Competition and Markets Authority (CMA) here The original text has been retained unamended, therefore it does not reflect or take account of developments in case law, legislation or practice since its original publication in 2015.
A break provision by a residential landlord before the expiry of the first six months would certainly be “unfair” to the tenant and would not be exercisable in law – assured shorthold tenancies are for a minimum of 6 months.
Most residential landlords want a simple deal with a reliable tenant giving them maximum power and total certainty. That is why it is always best to stick to a basic six month term with no break provision.
Despite the government’s insistence that it supports longer term tenancies – see model agreement for a shorthold assured tenancy – there are many pitfalls to this. If he knows he will lose his deposit if he paints the walls dark green, a tenant will refrain from doing so. But if he thinks he can be there safely for three years, he might just forget, or allow his daughter to line her walls with black cloth, his young son to use the walls as a chalkboard, or whatever. Man and wife may fall out and a judge may grant occupation to only one of them – with children. The possibilities are endless.
All that said, it could reasonable to insert a break clause in a residential tenancy by either party in an agreement for a term greater than six months.
If you find yourself in the position of wanting to implement a break clause and you have concerns, then it is always advisable to seek the help of a property lawyer.
Summerfield Browne Solicitors have offices in London, Birmingham, Cambridge, Oxford and Market Harborough, Leicestershire
Break Clauses in both Residential & Commercial Leases https://t.co/CZvao5xZXC
— LandlordZONE (@LandlordZONE) February 15, 2017