Are you approaching your Break Clause?

What improvements can be achieved

Entering lease negotiations with a Landlord, especially when still bound by it, is a bit like a lion hunt – they aren’t always successful! Reading a lease can also be an arduous task and identifying areas to improve are hard to spot by the un trained eye. The legalese is confusing and the lack of punctuation painful. However, with careful planning and strategy, the chances are increased.

The desired lease improvement that springs foremost in everyone’s mind is, of course, a rent savings. Office rents have fallen over the course of the pandemic, so why should you be paying an inflated price? Well, we don’t think you should.

As well as rent reductions there are other angles that deserve consideration.These can include requesting a return of deposit monies; contributions paid by the Landlord for office improvements can be sought; liability caps; rent free periods and a lower rent. Every lease is different, so a careful review will be required to identify all angles of attack.

Timing

Firstly, it is imperative Tenants appreciate the time frame required to serve notice, and the date to begin this process should be flagged up in the diary well in advance, so it cannot be overlooked. If you miss this window, you cannot exercise the break option! It is vital that you leave enough time to conclude the negotiations before the break date, and importantly take into consideration the inevitable delaying tactics the Landlord may employ. We find it is advisable to leave something in the region of 6 months to tackle the project.

You need to create leverage

Moving offices is expensive and disruptive, and wily Landlords are well aware of this.To combat this, Landlords must sense that you are prepared, and in a position, to exercise the break clause. Without putting the necessary foundations in place, you will not create leverage and optimise the opportunity. So, what are the necessary foundations?

Give the Landlord a viable reason as to why you are breaking. Siting moving to a cheaper office will probably be of little benefit once you factor in the moving costs and hassle, so you need a better reason than ‘’we have found a slightly cheaper office’. In our experience, we find operational reasons tend to be more effective, examples include the office is in the wrong location: it is now too large due to staff working from home; the building is not up to standards. Wrong signals to the Landlord will be read into and could show your hand.

Explore the market

Before entering break clause discussions, you must explore the market to get a plan B.It is imperative to have a fall-back plan as this will give you some leverage.It will also act as a market benchmark to help the break clause negotiations.

Finally, you’ll need a solicitor  

Any gains achieved will need to be documented in the lease, typically by a deed of variation. Likewise, if you decide to break the lease, your solicitor will advise on the process for serving the notice in accordance with your lease.

And as the Rolling Stones sang back in 1968, ‘You can’t always get what you want’! Renegotiating around break clauses can be difficult, and you don’t always get all you want. But with the correct advice, you will have a better chance of getting ‘what you need’!