Break clauses in healthcare leases - avoid the traps

Many present day healthcare leases contain a “break clause” which gives the tenant the right to terminate the lease before the end of its term.

Landlords will often include conditions attaching to the break clause such as:

• The rent has been paid up to date
• The tenant gives up the premises with vacant possession
• The tenant must have complied, or materially complied, with all the covenants in the lease
• The tenant must not be in breach, or materially in breach, of the repairing covenants

Break clauses will be strictly interpreted by the courts and tenants must ensure that they comply with all the terms of the break clause.  Particular attention should be given to the following:

-           The notice must be served on the correct party and the correct number of months before the break date.  The lease often contains provisions relating to service of notices and these should be followed literally.

-           If there is a requirement for vacant possession to be given on the break date the tenant must ensure that they have vacated the premises and all their possessions have been removed by that date.  A tenant who remained on the premises to carry out dilapidation repairs after the break date was deemed not to have given vacant possession even though he had no intention of excluding the landlord from access to and occupation of the premises from that time.

-           If there is a condition that the rent must be paid up to date the last quarter’s or month’s rent should have been paid.  A tenant who paid the rent up to the break date was held not to have complied with this condition.  The tenant should check that there has not been any previous late payment that may be subject to an interest charge and has not been claimed by the landlord.  If there is a potential liability, it should be calculated and paid to the landlord.  Also, the tenant should ensure that cleared funds have been provided.

-           If there is a condition requiring compliance with repairing obligations the tenant should consider carrying out a compliance audit with their surveyor so that any breaches can be remedied by the break date.

If you would like advice in connection with your healthcare building lease or wish to ensure that notices are served correctly during its term, we will be pleased to assist.

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