A recent case dealt with a dispute over a notice to terminate a lease. The Royal Bank of Scotland (RBS) was the owner of a property let to another company. The property was managed for RBS by Schroder Property Investment Management Ltd. (SPIM), the property management arm of the Schroder Investment Group.
The lease provided that if the tenant wished to terminate the lease, the landlord had to be given nine months’ notice. Under the break clause, notice to terminate the lease had to be given by 3 October 2009. The lease also stated that the notice had to be served on SPIM. The notice to break the lease was duly served on RBS in September 2009, but the notice to SPIM was not served until December 2009.
The High Court held that time was of the essence in the service of both of the notices and SPIM’s notice also had to be served by 3 October 2009.
The notice to break the lease was therefore ineffective.
Break clauses in commercial leases have probably received more attention from tenants in the last year or so than at any time since the early 1990s.
In the present economic environment, many tenants will be seeking to vacate premises, reduce the size of their premises or renegotiate their leases, so times are tough for landlords. Furthermore, tenants who were ‘good tenants’ or who seemed financially strong may now be a less attractive proposition than they once were.
Here are some tips for landlords to help deal with tenants when a break clause in a lease is looming:
Be ready. Do your research on your tenant and try to anticipate their stance. Get up-to-date accounts and look at their operation. A short visit can often be very illuminating;
Be ready to remarket your property if negotiations with your tenant break down or they wish to terminate. Put together a pack containing all the necessary planning consents, searches and so on, so a prospective new tenant is in possession of all the information they need to make a decision straight away;
Make sure you know when and how notices must be issued. The notice you receive from your tenant may not be valid;
If your tenant wishes to renegotiate their lease, make sure you know your market and can ascertain what their other options might be. Also, consider asking for better security; and if you think the tenant is likely to default, remember that your right to repossession of the property may be delayed unless you act first.
If you require any assistance with commercial leases, contact Susan Pyne, Partner, Property Expert on: (01229) 811811. Like us on Facebook Follow us on Twitter.