Covid-19 has significantly impacted the business and trade of many commercial tenants across the country and has resulted in Landlords receiving requests for rent abatements, deferrals, and in some cases, even surrenders. Unlike in the U.K., the Irish Government is yet to introduce any statutory protections for commercials tenants, and some are finding it hard to see the light at the end of the tunnel.
Some tenants who have made the difficult decision to close some (or even all) of their premises may be lucky enough to have upcoming break options that can be exercised. Those who do not will have to either negotiate a surrender with their landlord (which may involve the payment of a surrender premium) or start the process of assigning their lease, something which may be rather difficult in the current climate due to the lack of demand.
Those tenants fortunate enough to have an upcoming break option in their lease should be mindful of the following points:
- Break options are strictly interpreted (especially now as Landlords are unlikely to find a replacement tenant straight away), and notices must be served correctly in accordance with the terms of the lease. There is no action to be taken on a Landlord’s behalf in relation to the service of the break notice, therefore making all procedural matters entirely a matter for the Tenant. Tenants should mark clearly in their diaries any notice periods /deadlines required for serving such notices.
- It is advisable to instruct your solicitor as early as possible so that the break option clause can be reviewed, and the conditions adhered to in the correct fashion. If your lease states that the break notice must be served by registered post it will almost certainly be void if served via email. It is also important to serve the notice on the correct person/entity.
- Time is normally of the essence in respect of break options i.e. notice periods for serving your break notice are strict and missed dates will be fatal. If a notice period is missed the Tenant runs the risk of being lumbered with the lease (and the rent) for the remainder of the term. That could be incredibly costly.
- Break options are often conditional upon certain matters being complied with e.g. payment of rent and other sums due under the lease (service charges & insurance), vacant possession being provided, penalty payments and compliance with all material aspects of the lease. Tenants should always err on the side of caution in respect of these conditional items, for example, if the break date falls halfway between a quarter, it would be prudent to pay the full quarter’s rent upfront (past the break date) and then later apply for a refund of any overpayment to avoid being in breach of the tenant’s obligation to pay rent “quarterly in advance”. All invoices should be requested from the Landlord as soon as possible and Tenants should not attempt to calculate break payments themselves.
- Tenants should instruct a surveyor well in advance of the break date to ascertain what is required to comply with its yield up obligations / any dilapidations which need to be dealt with. This will provide Tenants with time to either negotiate a dilapidations settlement amount with the Landlord or time to complete the works.
- Agree with the Landlord what, if any, items need to be removed from the premises to provide vacant possession. The issue here is that leaving behind even a couple of loose items on the premises could count as remaining in possession and therefore a tenant could lose his right to break. Nothing must remain to be removed after the break date save with the express written agreement of the Landlord.
- If you are not the original Tenant who entered into the lease, ensure that the break option was not personal to that tenant and is capable of still being exercised.
- Finally, do not serve a break notice as a strategic means to renegotiating your current rent. Once served, a break notice cannot be withdrawn, and the Tenant runs the risk of the Landlord proceeding with the termination of the lease when this is not what was intended.
We have extensive experience of working with both Landlords and Tenants to advise on the practical application of lease obligations and covenants. We are available to discuss any issues that may arise for you as a result of your evolving obligations as a Landlord and/or Tenant during this time of uncertainty. For further information, please contact Sarah Keenan, on +353 1 639 3000 or visit www.leman.ie.