Businesses warned about taking a break

1st February 2009

More and more commercial tenants are in danger of paying two lots of rent per month as they seek a break in their contracts, it was claimed today.

Leading Midlands solicitors Higgs & Sons is issuing the warning to companies who occupy leasehold premises, after reporting that more businesses are looking to utilise break clauses from their contracts to combat the credit crunch.

Higgs' head of property litigation Nyree Applegarth said that tenants should seek sound advice if they were thinking of taking the action, as many landlords offer break clauses - with complicated terms and conditions.

She said: "As the recession continues to bite, there are a number of companies occupying leasehold premises who are considering vacating those premises and potentially decreasing outgoings. 

"In the letting heydays of the late 1990s and the early part of the new millennium, it was common for leases to be negotiated for a 10-year term, but with the inclusion of a break clause to allow the tenant some flexibility.  

"When the terms of the new lease were being documented, the detail of the operation of such a break clause was often overlooked as the pressure of completing the lease took precedence.  

"However, in harsher economic times, it is precisely the detail of the break clause that can give rise to consideration as to whether the lease can be broken, on what date and, more crucially, what must the tenant do to ensure the lease is broken."

Nyree claimed that the upshot of vacating a commercial property through a break clause could result in 'double rent liability' if sound advice was not taken.

"As times get harder, it is likely that an increasing number of landlords are going to seek to argue that a tenant's break notice is ineffective. Therefore a well advised tenant, contemplating termination of a lease, should always ensure they take advice on the steps that need to be taken to ensure validity of a break clause.

"If early determination of a lease is the aim, the last thing a tenant wants to find is that they have relocated and incurred the cost of setting up elsewhere, only to find the old lease continues and they have a double rent liability.   Early advice can prove invaluable.

"Often a break clause will also oblige a tenant to make a penalty payment upon exercising the break option.  This could be a sum equal to anything from three to 12 months rent, depending on what was negotiated at the outset."


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