How retailers can avoid ‘predator' landlords’ cunning use of break clauses

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To avoid falling prey to difficult landlords, tenants need to understand their break clauses and do exactly what is required of them.

To avoid falling prey to unscrupulous landlords, tenants need to understand their break clauses and do exactly what is required of them.

In an omnichannel retail world, some bricks and mortar can hang around the necks of retailers like an albatross. Retailers will usually take that into account and agree break dates with their landlords, so that they can exit properties that are not performing.

But life is not always so simple.

Over the past few years we have noticed that landlords are more likely to challenge break notices, sometimes for legitimate reasons and at other times to frighten tenants into concessions.

There are particular landlords we encounter whose starting (and often ending) position is to challenge all break notices.

Extra care and attention is needed when negotiating break clauses in these leases and when serving the break notice to avoid falling into the traps of what might be termed ‘predator landlords’.

There are some common mistakes or technicalities upon which a landlord may contest a break notice:

missing the deadline for service of the break notice;
where the lease specifies a particular form of notice, not using that form;
serving notice from the wrong person or on the wrong person;
not following the method of service that is set out in the lease;
failing to pay the correct amount of rent;
failing to pay “all sums due” under the lease. This may include less obvious sums, including service charge, interest on arrears and landlord’s costs;
failing to carry out works to the premises that are specified in the break clause.

It is crucial that tenants know and do exactly what their break clause requires of them. Planning, diarising and seeking advice early are all helpful.

Remember, landlords are often willing to run minor, technical points to prevent a tenant from breaking the lease and retaining the revenue stream provided by rental payments, especially where tenants are hard to come by.

Notwithstanding the expense and effort involved in a tenant adopting some of the suggestions below, it will likely be worth it to avoid having to remain in unwanted premises:

keep documentary evidence of how you have complied with the conditions of the break clause;
seek advice on the terms of the lease and the conditionality of the break clause both at the time of entering into the lease and prior to effecting any break rights later on. When negotiating future leases try to push for an unconditional break right;
consider instructing surveyors to carry out a compliance audit prior to serving the break notice. That way, you will be aware of the extent to which you have not complied with the lease terms and the likely cost and time needed to remedy such for the break to be effective;
consider paying outstanding sums, even where these are disputed. Payment can be made on a ‘without prejudice’ basis and disputed following a successful break;
double-check for late payments and whether interest is due on them. If so, include these sums when you pay the landlord;
ensure payments are made in cleared funds by the required dates;
consider liaising with the landlord to seek confirmation of the steps you need to take to break the lease effectively (although the landlord is not required to co-operate and may not do so);
ask the landlord what exactly is meant by “vacant possession” and document it. Take photographs of any steps you then take to comply with the vacant possession condition – for example, removal of furniture;
bear in mind, at an early stage, the repair, redecoration and reinstatement obligations that you are required to fulfil, as conditions to a break clause may require third-party consents and will require time to undertake. Ensure that consents are obtained sufficiently in advance of the break date to allow such works to be completed.

In general, attempt to negotiate an unconditional break clause in your lease or, if that is not possible, minimise the break conditions so that they are easily complied with.

Take care to serve the break notice in the required form, to the correct party and at the correct time.

Be aware of who your landlord is: a ‘predator landlord’ will treat you as predators do.

If you want to be in a position to escape, you need to plan this early on, at the time of negotiating and agreeing the wording in the break clause.

Do not leave it until the last minute.