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We continue to live in interesting times with a double dip
recession, austerity measures and the credit crisis. Many
businesses are rethinking strategies and cutting costs which could
in turn involve exercising break clauses within leases.
When a tenant serves a break notice it needs to be sure that it
is prepared for its lease to come to an end as problems arise if it
changes its mind during the notice period. A break notice cannot be
unilaterally withdrawn and even if both parties agree to its
withdrawal, case law shows that this will constitute the
commencement of a new tenancy on the break date. As a
consequence:
Former tenants (in the case of an "old" lease granted
before 1 January 1996) and guarantors will be released ;
Rent deposits would most likely need to be returned to the
tenant;
The security of tenure provisions contained in the Landlord
& Tenant Act 1954 will not automatically be excluded even if
they had been excluded before the break notice was served;
Any subsisting underleases would also come to an end and new
underleases would be granted by implication with each of the above
consequences applying to the underlease as well as to the superior
lease.
If a landlord is happy to allow a tenant to remain in occupation
notwithstanding service of the break notice, the landlord should
either:
allow the tenant to fail to comply with a condition of the
break clause; or
grant a new Lease.
In the case of (A) the parties should not document the
withdrawal of the break notice as it is the act of agreeing to
withdraw the notice which creates a new tenancy on the break date.
This is so regardless of whether the tenant complies with the
conditions of the break clause or the landlord specifically waives
the break conditions.
If a landlord is willing to allow the tenant to remain in
occupation, the most sensible course of action, to remove any
uncertainty and provide comfort to both parties, would be for the
landlord to grant a new lease (although this will involve further
costs). The security of tenure provisions can be excluded, if
appropriate, fresh security such as a rent deposit can be provided
to the landlord and previous guarantors can be asked to guarantee
the tenant's obligations in the new lease.
A tenant should therefore carefully consider whether or not to
exercise its break clause and review all options including asking
its landlord, prior to service of the break notice, whether it
would be prepared to re-gear its lease.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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