A break right is an agreed legal right of a landlord or a tenant, usually present in the text of the lease itself, to end the lease on a particular date, usually after giving a fixed period of notice.
- Tenant’s break rights are more flexible than rights to underlet or assign (transfer to a new tenant) which may only partially release a tenant from obligations to pay rent, carry out repairs and take responsibility for other costs, risks and work relating to a leasehold property. [Alienation]
- Generally, rights to assign or underlet that are subject to landlord’s consent have the disadvantages of the uncertainty of: finding a new tenant or undertenant at all; whether the new tenant or undertenant will complete the transaction; and when the new tenant or undertenant will complete the transaction if they do proceed. There are other issues to consider such as timing, the cost of paying the landlord’s fees, the legal costs preparing any relevant documentation and, where relevant, the cost of valuation advice in dealing with sections 117 to 121 of the Charities Act 2011. [Charities Act general valuation procedure]
- A commercial or a voluntary sector landlord will often accept a tenant having break rights when the financial or other reasons behind them are explained. Organisations may offer to give up the usual general rights of assignment or underletting in exchange for this, although some community buildings will need rights to underlet to organisations where occupation licences are impractical. [Lease or licence]
- When negotiating leases, tenants should resist any attempt by the landlord to make the exercise of a break dependent on conditions being fulfilled. This is generally unfair because if the break is invalid the penalty is that the tenant will retain liability for payment of rent and other obligations such as repair for a substantial period, and this is not proportionate.
- A common condition sought by landlord is material compliance by the tenant with obligations under the lease. This is effectively a trap, because there would otherwise be statutory limits on a tenant’s repairing obligations at the end of a lease term, but a tenant would have to comply with the lease terms to be sure that the break notice was valid. There would also be general uncertainty whether the landlord would challenge the break notice on this basis.
- Although the up to date payment of sums due as a condition of the validity of a break notice may sound reasonable, this can be another trap because a tenant may not be aware that small sums (such as interest on late payment) remain outstanding.
When serving a break notice, the party serving it must be sure that they comply with all conditions in the lease relating to service of notices, otherwise the break notice is likely to be invalid. This will involve examining the whole lease document.
- If there is to be a landlord’s break right, it follows that the lease must be contracted out, otherwise if the landlord were to exercise it and it it was coupled with a statutory notice under the 1954 Act, the tenant would have the right to apply to the court for a new lease. This would defeat the purpose of the notice. Tenant’s break notices will be fully effective in any event meaning that the tenant will not have the right to apply to the court for a new lease once it has exercised its break right. [Landlord and Tenant Act 1954]