Break Clauses in Leases: The Impact of Covid-19

28th April 2020

As we all know, the impacts of Covid-19 are reaching far and wide. Where prospective tenants are still going ahead and entering into leases, many are seeking an additional right to break within the next 12 months as a way of incorporating some form of safety net, should things not pick up as quickly as we hope after lockdown, or should lockdown continue for longer than anticipated.

But what about tenants who are already party to a lease and looking to exercise a break right? Can they validly exercise that right in the light of the Covid-19 lockdown?

The answer will depend on the conditions attached to the break and so careful reading of the lease is required. Once notice has been effectively served and the relevant period has passed, it may be that the only condition is for the tenant to have paid its annual rent due up to the date of the break. Therefore if a tenant is in the fortunate position that it can still afford to pay its rent, the break will be effective and they can walk away.

A difficulty may arise where the conditions attached to the break include an obligation to give up occupation and provide vacant possession, furthermore, some leases will contain a reinstatement clause in respect of alterations that may have been carried out. Giving up occupation is more than simply not being there in person, and whilst a landlord may not challenge a tenant who has left the odd desk or filing cabinet behind, a tenant that has installed a significant amount of equipment and machinery in the property will be required to remove it, or risk a claim by the landlord that they have not given vacant possession. This is of course easier said than done where the rules around lockdown prevent access to the property to carry out the necessary works.

Break clauses are usually the subject of strict interpretation by the courts, however we are in uncharted territory and as with rent issues over the impact of Covid-19, courts will most likely be looking to landlords and tenants to apply an element of reasonableness and proportionality to their approach. As such, if you are a tenant or landlord and a tenant break is imminent, you should carefully consider the terms of that break and enter into early discussions to ensure that there is no lack of clarity around the requirements and expectations of the parties.

Get in touch
If you would like some help with an issue relating to commercial property, our experienced team at Murrell Associates would be delighted to help.  You can contact the writer Tamsin Mann on 01872 226990 or by emailing tamsin.mann@murrellassociates.co.uk.