Protect your business from redevelopment rolling break clauses
Redevelopment rolling break clauses are becoming increasingly common, particularly in areas where office space is scarce and competition stiff.
Businesses rely on landlords to renew tenancies for business security and, in order to give themselves more flexibility with redevelopment options, some landlords seek to impose redevelopment rolling break clauses in new leases.
What is a redevelopment rolling break clause?
A redevelopment rolling break clause enables a landlord to terminate a lease at any time during the term of the contract for the purpose of redevelopment of the property. If a contract has this clause, the tenant could be asked to vacate the premises at any time, putting them, and their business, in an unstable position.
How could it affect tenants?
Many tenants assume that if a landlord seeks a redevelopment break clause, they are likely to succeed. As a result, many tenants are wary about contesting a the clause and will agree to less favourable lease terms on renewal of their contract so that the landlord agrees to drop the proposal.
This could enable landlords to increase rents to “bolster” comparables (make the property appear more valuable by market comparison), to get back possession of premises, and possibly to escape having to pay statutory compensation such as removal costs and inconvenience caused.
What must be taken into account?
Tenants should be aware that in order to secure the inclusion of a redevelopment break clause at renewal, the landlord has to demonstrate a real possibility of re-development.
There are several factor that need to be taken into account:
- The landlord should be able to provide detailed and concrete redevelopment plans. If these are vague or unrefined, this will be to the tenant’s advantage.
- There should be a justification as to the extent of the works and whether they are substantial or just cosmetic
- A timescale for carrying out the works should be outlined – why does the landlord need possession sooner rather than later?
- The feasibility of carrying out the works should be explored
- The configuration of the premises should be outlined
- The detriment to the tenant should be considered and the tenant’s wish for business security should be balanced against the landlord’s wish for redevelopment.
If all of these factors are considered and stressed in court by the tenant’s solicitors, it may well be possible to negotiate a new tenancy agreement on more satisfactory terms.
Tenants should therefore not simply roll over and accept the landlord’s break clause at the outset. While opposing a redevelopment break clause outright is difficult, it is possible for a tenant to improve their position by testing the landlord’s case and requiring the landlord to make out their grounds.
For more information on this topic or any of our services please contact Mark Davies on 020 7822 4113 or email firstname.lastname@example.org.