Landlords have historically wanted leases to be as long as possible, in order to enhance the value of their buildings with an uninterrupted stream of rental income.
Tenants however, have long pushed for more flexibility, to enable them to move to bigger or smaller accommodation as business’ office space requirements change.
To square the circle, a great deal of leases have been signed with break clauses, offering tenants options to break.
In the current market, we have assisted some savvy tenants to use their option to break in an opportunistic way (shh!). In essence they have served the required notice to break, or threatened to do so, in order to attempt to reduce the cost of their office space, or to move.
The correct method
The key is to be organised well in advance of the time when notice needs to be served to break a lease:
• Get legal advice on operation of the break (carefully worded prior written notice is usually required – often at least 6 months in advance of the break).
• Thoroughly investigate the market for alternative accommodation.
• Consider moving to alternative offices if serious cost savings can be obtained.
• Negotiating with your existing landlord to improve the existing lease may be worthwhile.
Tenants need to be extremely careful as there are a number of cases where tenants have bluffed to their peril. They have effectively terminated their own lease early in order to renegotiate the commercial terms and the clever old landlord has let them go! Sometimes the landlord wanted them to go anyway and would have been prepared to pay for them to leave!
Others however, have managed to improve their cost base by using their break clause carefully, or indeed moved to more suitable premises.
Do remember that every property and every lease is different. We strongly advise that tenants do not act before carefully considering their break option with their solicitor and their premises and the prevailing property market with specialist commercial property advisors.