Property Auditing | Breaking a Lease Part 2 | The ‘what’
Introduction
This is our second article focusing on what you need to consider if you need to break a retail lease.
We have put this information together based on our experience as Forensic Retail Property Lease auditors, but nothing in this article should be considered as advice. If you need to break a lease it would be sensible to ensure you have sought appropriate legal advice. This blog is designed to be thought-provoking, to give you an opportunity to give proper consideration to something that is a very final action, and one that should only be a last resort.
In our first Blog on this topic (see here), we explored why you might need to break a lease. In this blog, we discuss in greater detail what a lease contains and how it might impact your actions in planning how to approach a break.
Breaking a lease, Part 2: The ‘What’
Leases are complex legal documents, based on legislation that dates back centuries, and it can be tempting for a business to leave the technicalities to their legal team. However, leases set out details of commercial importance, covering what you should or should not do, and it is important that the commercial as well as legal factors are taken into account.
The following aspects are especially crucial for tenants to understand if you have decided that a break in a lease needs to be implemented:
Who can action a break?
A break clause in a lease will stipulate who is able to end the lease. This can be the landlord or tenant individually, or both on a mutual basis.
When does it take place?
There are two relevant dates, both of which will be stated in the lease.
a) Notice Date
The lease will specify the date(s) when notice must be given by the party wishing to break the lease. Notice must be given exactly on the specified date to be legally valid, and any other conditions of service must be adhered to (we recommend instructing an experienced lawyer for this).
For the notice to be legally valid, the party serving the notice MUST themselves be legally compliant with all of the terms of the lease. This includes payment of all amounts due under the lease as at the date of giving notice. So if for example you are in the habit of paying your rent one month in arrears, this MUST be corrected before the date you serve notice.
It is advisable that a proper review of all your lease financial (and other) obligations has been carried out prior to giving notice to break a lease. This ensures that no unpaid invoices from the past are missed; the sum may appear trivial, but if unpaid it is enough for the landlord to be able to invalidate your notice.
Often when Contractus conducts an audit, we discover that rather than our client owing the landlord money, the situation is reversed – we frequently identify previous overpayments and obtain reimbursement of those funds for our client. When this happens, not only does our client have confirmation of the payment of all historic lease obligations needed to enable the break, they also have the benefit of the extra cash generated by the refund.
b) Break Date
On the actual break date you must do two things:
Ensure that you have paid all obligations due under the lease, including for example paying rent and services charges in advance. That may include periods beyond the break date, but scrupulous payment exactly in accordance with the lease terms is vital.
Return the key and possession of the property to the landlord.
Financial Obligations
All financial obligations are set out in the lease document, both what is to be paid when and to whom. For your break to be valid, ALL of these must be correctly paid at the relevant dates.
In conclusion, when contemplating the termination of a retail property lease, understanding and carefully considering the factors related to the Notice date and Break date is crucial. These factors include:
Notice Period: Familiarise yourself with the notice period specified in the lease agreement. Adhering to this timeline is essential to avoid any potential penalties or breaches of contract.
Break Clause Conditions: Pay close attention to the specific conditions outlined in the break clause. Ensure that you meet all requirements, such as providing written notice within the stipulated timeframe and complying with any additional conditions set out.
Financial Implications: Assess the financial implications associated with the Notice date and Break date. Consider any potential penalties, unpaid rent, or other monetary obligations that may arise from breaking the lease.
Negotiation Opportunities: Use the Notice period as an opportunity to engage in negotiations with your landlord. Discuss your reasons for terminating the lease and explore the possibility of reaching a mutual agreement or finding alternative solutions that benefit both parties.
Advice: Seek guidance from a legal and/or Financial Audit professional experienced in commercial real estate to ensure you navigate the process correctly. They can help you understand your rights and obligations, provide expert advice on the Notice and Break dates, and assist in protecting your interests.
By carefully considering these factors, tenants should be confident to approach the Notice date and Break date with clarity and preparedness. Breaking a retail property lease can be complex, but with proper understanding and guidance, tenants can mitigate risks and ensure a smooth transition out of the lease agreement.
The expertise within Contractus enables us to assist businesses with their property premises, ensuring that all payments are in order and any anomalies are dealt with expeditiously, leaving you better-informed for future negotiations.
How can we help you?
Visit our property services page to learn more about how we can help you.
WEBSITE DISCLAIMER
The information provided by Contractus Limited (‘we’, ‘us’, or ‘our’) on http://www.contractusaudits.com (the ‘Site’) is for general informational purposes only. All information on the Site is provided in good faith, however we make no representation or warranty of any kind, express or implied, regarding the accuracy, adequacy, validity, reliability, availability, or completeness of any information in the Site. UNDER NO CIRCUMSTANCE SHALL WE HAVE ANY LIABIITY TO YOU FOR ANY LOSS OR DAMAGE OF ANY KIND INCURRED AS A RESULT OF THE USE OF THE SITE OR RELIANCE ON ANY INFORMATION PROVIDED ON THE SITE. YOUR USE OF THE SITE AND YOUR RELIANCE ON ANY INFORMATION ON THE SITE IS SOLELY AT YOUR OWN RISK.
EXTERNAL LINKS DISCLAIMER
The Site, may contain (or you may be sent through the Site) links to other websites or content belonging to or originating from third parties or links to websites and features in banners or other advertising. Such external links are not investigated, monitored or checked for accuracy, adequacy, validity, reliability, availability, or completeness by us. WE DO NOT WARRANT, ENDORSE, GUARANTEE OR ASSUME RESPONSIBILITY FOR THE ACCURACY OR RELIABILITY OF ANY INFORMATION OFFERED BY THIRD-PARTY WEBSITES LINKED THROUGH THE SITE OR ANY WEBSITE OR FEATURE LINKED IN ANY BANNER OR OTHER ADVERTISING. WE WILL NOT BE A PARTY TO OR IN ANY WAY BE RESPONSIBLE FOR MONITORING ANY TRANSACTION BETWEEN YOU AND THIRD-PARTY PROVIDERS OF PRODUCTS OR SERVICES.
PROFESSIONAL DISCLAIMER
The Site cannot and does not contain consultancy advice. The consultancy information is provided for general informational and educational purposes only and is not a substitute for professional advice. Accordingly, before taking actions based upon such information, we encourage you to consult with appropriate professionals. We do not provide any kind of consultancy advice in this Site. THE USE OR RELIANCE OF ANY INFORMATION CONTAINED ON THE SITE IS SOLELY AT YOUR OWN RISK.