Julie Carr, Head of Residential Development at Brady Solicitors, discusses break dates and lease re-gears and encourages commercial landlords, tenants and developers to get out the metaphorical feather duster to ensure that important legal deadlines are not missed.
With summer well underway (so they tell us), do you still have time to carry out a Spring Clean? The answer is emphatically yes – get cracking! There is peace of mind to knowing you have your dates and legal commitments under control.
What do we mean by a Spring Clean? We mean carrying out a much-needed audit of all time critical matters such as:
- Expiry dates for contracts such as option agreements, planning promotion agreements and collaboration agreements
- Expiry dates for any other long-term contract with payments due
- Rent review dates
- Break clauses
- Lease expiry dates
- Planning for future relocations
- Planning for lease negotiations
Are these diarised for enough people to be alerted so that deadlines are not missed? Do you have your legal paperwork together in one place? If you are a tenant, have you received a rent authority letter from your landlord telling you that you have a new landlord?
We were contacted recently at Brady Solicitors to serve a break notice.
The notice period was 9 months under the lease and the client, thankfully, contacted me one month before the notice needed to be served.
This gave us time to put three diary dates in our calendar, to review the lease terms in detail and advise the client of its liabilities and to then re-check with the client immediately ahead of serving the break notice whether he had received a rent authority letter or any other correspondence from his landlord.
The day before our request, he received a rent authority letter, so we arranged to issue the break notice to the new landlord and avoided any last minute panics.
Avoid last minute break clause horror stories
The horror story is realising the day before a break notice must be served that you’ve a new landlord and the break notice was served on the previous landlord. A quick check at the Land Registry (or with your property management company) will give you updated landlord details and ensure you are serving your break notices on the correct party.
A failure to serve a break notice on the correct landlord would mean an ineffective break.
It is best to diarise breaks with plenty of time before the deadline for service of a break notice.
On a practical level, this approach gives you time to consider whether the premises remain suitable for your requirements, so you can make an informed decision and either work towards a smooth transition into alternative accommodation or negotiate a renewal of your existing lease.
Understand the requirements for an effective break clause
Ask your solicitor to assist you with understanding your requirements for an effective break. For instance, the break may not be perfected until you have given vacant possession at the end of the term or paid all of the rents and/or a break penalty payment. Will you need to pay your rents up to the end of the break date or to the next quarter date for the break to be effective? If it’s the latter, is the landlord required to pay back rents paid beyond the break date?
Make sure that you also review your obligations regarding reinstatement of the property at the end of the term.
In most circumstances a clean break is much preferred to having finalised your reinstatement works—just be certain you are completely out of the property by the required date or you may find that your break is ineffective.
Is it time to re-gear your lease?
Maybe a break is not on the cards and instead, you have several years to run on your lease, but the location is perfect and business is good so your main concern is how to hold onto the property after the end of the term. Maybe now is the time to consider a lease re-gear. This can be effected in several different ways so it’s best to take legal advice on which way will suit you best.
Your landlord will want to ensure that any re-gear will only be effective if you have firstly complied with the terms of your current lease. You will have to consider whether you will have to pay SDLT now for a lease that may have a start date in a couple of years’ time, or whether it is best to enter into an agreement for lease with the lease to be completed at the time of the intended start date — ie when your current lease runs out.
Your new lease will normally require you to reinstate the property to the state and condition as required by the original lease and will normally make reference to all licences for alterations and other consents you obtained prior to or during the term of your current lease, including any that are obtained prior to the expiry of the existing lease.