Why 9 words in a lease could threaten your business

Clause 8.2.5  

On expiry of the Notice the Tenant shall yield up the whole of the Premises with vacant possession and in a state and condition required by this Lease.”

An established client recently moved companies to take up a new senior position and asked us to review their leases as the business was growing and they would soon need bigger premises.  We were told that the move had been planned for as break clauses were put into the leases before they were signed.  Break clauses allow a tenant to serve a notice on the landlord to end the lease before the end of the term. On looking at the leases, sure enough they did contain break clauses but unfortunately the wording of one was far from ideal.  The clause in question is above.

The problem is that the break clause has a condition that obligates the tenant to put the building back in exactly the same condition as at the start of the lease but before the date of the break.  If the works are not done properly the break may not be effective.

The majority of leases contain repairing and reinstatement provisions for when a tenant moves out.  In most cases a tenant moves out and then reaches a financial agreement with the landlord. In this instance to break the lease the tenant has to carry out all the works before the break date.  “yield up…… in a state and condition required by this Lease” Potentially if one detail is missed then the break could be ineffective.  The result may be that lease continues so the tenant remains liable for rent, rates and maintenance, after moving out of the building, having reinstated it and in this case possibly having signed a new lease on alternative premises.

Q: What can be done in the circumstances?

All is not lost……the first step is to have discussions with the landlord to see if agreement can be reached to make a financial settlement in lieu of doing the works but this should be done before break notice is due. If this is not possible, take early advice from a building surveyor to plan to get the works done in good time and if possible get them signed off by the landlord.  The landlord has no obligation to agree to this.

Q: Could this situation have been avoided?

Yes take early advice before a lease is entered into from a Solicitor and Chartered Surveyor.  In most cases landlords when faced with the prospect of losing a letting will agree to such a condition being removed.

If you’re in a similar situation, or require a chartered surveyor to help with your landlord or tenant matters – just talk to us today by calling 020 8866 0001. We’re RICS registered and here to help you and your business whenever you need us.