commercial leases: hot topics
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Commercial Leases: Hot Topics 29 April 2014
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Commercial Leases: Hot Topics Chair Kevin Hoy, Head of Real Estate
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Law
• No statutory framework
• No Irish reported case law
• No standard form lease break option provisions
• No industry accepted or endorsed code of practice
• Governed solely by law of contract
• UK case law of persuasive authority
Example of a Break Option Clause
“The tenant shall be entitled to terminate this Lease on 30 April
2015 (“the break date”) strictly subject to compliance with the
following terms and conditions:
(a) service by the tenant of at least twelve months’ prior written
notice on the landlord;
(b) discharge by the tenant of the rent and all other outgoings
payable under the lease up to the break date; and
(c) compliance by the tenant of all of the tenant’s covenants and
conditions under the lease up to the break date.”
Service of Notice
• Identity
• Authority
• Timing
• Service
Discharge of Payments, Rent and Outgoings
• Break payment
• Rent and outgoings
• Apportionment and overpayment
• Cleared funds
Compliance with Covenants and Conditions
• Subsisting breaches
• Materiality
• Repair and decoration
• Alterations
• Vacant possession
Estoppel
• Landlord action or inaction can affect its legal position
• Landlord strategic response to tenant engagement
• Landlord estopped from denying tenant compliance by virtue of
encouraging, or acquiescing in, tenant’s non-compliance
Takeaways
• Take timely legal advice
• Identify the full nature and extent of tenant’s obligations
• Engage strategically with tenant
Overview
• Effective, Speedy, Economical
• Way for a landlord to get back vacant possession of a
leased premises
• Without the necessity of obtaining any court order for
possession
Overview
• Can be stressful, intensive time
• Landlord should take legal advice in advance of re-entry
to minimise risk and exposure
Current attitude of landlords
• Substantial increase in use of re-entry as a method of
terminating lease
• Willingness to consider re-entry even in complex
scenarios
• Alternative of issuing proceedings not commercial or
timely
Framework
• Common Law – very limited right to re-enter
• - confined to conditions in leases only
• - “on condition that”, “provided that”
• Terms of lease – Does it give an express right to re-enter?
• Section 14 1881 Conveyancing Act
• Landlord and Tenant (Ground Rents) Acts
• Caselaw
• - Main Irish case - Sweeney Ltd –v- Powerscourt
Shopping Centre Limited [1984]
What is re-entry?
• It is where a landlord physically re-enters a demised
premises for the purposes of terminating the lease
• Service of a notice in itself is not sufficient
• Must actually get into the premises – no other act is
sufficient
When can a landlord re-enter?
• Expressly provided for in lease
• Common law – limited right to re-enter
Legal effect of termination by re-entry
LANDLORD TENANT SUB TENANT
(OF TENANT)
GUARANTOR
(OF TENANT)
MORTGAGEE
(OF TENANT)
Tenancy ends
once landlord
peaceably
re-enters the
premises.
Tenant’s interest
ceases once
premises is re-
entered by
landlord.
Subtenant’s
interest ceases.
Guarantor’s
liability re: future
rent and
covenants in lease
ceases unless
express provision
of lease states
otherwise.
Mortgagee’s
interest ceases as
the asset no
longer exists.
So when is it an effective tool?
• Tenant in breach
• Lease/common law permits re-entry
• Landlord satisfied to release tenant/guarantor
• Landlord wants vacant possession
• Business being run from demised premises is conducive
to re-entry
Section 14 Notices
• In writing
• Addressed and served on tenant
• Specify breach
• Specify remedy
• Call on tenant to remedy breach
• Give reasonable time
How to minimise risk
• Obtain legal advice
• Consider issues/barriers to re-entry in respect of the
specific premises
• Keep element of surprise
• Keep it peaceable
How to minimise risk
• Solicitor send letter to former tenant post re-entry
• Give tenant back its goods
• Keep it simple post re-entry
Actions tenant can seek to bring against landlord
• Relief from Forfeiture – Can be obtained even if landlord
has done everything correctly
• Damages
• - re-entry not procedurally correct
• - goods which perished
Limitations/drawbacks/risks
• Not a universal panacea
• Commercial leases only
• May still have to sue tenant/guarantors
• Relief from forfeiture
• Title
Tenants Suing Landlords Eamon Marray BL
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Q & A
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Eimear Collins, Partner e: [email protected]
Nicola Byrne, Senior Associate e: [email protected]
Kevin Hoy, Head of Real Estate e: [email protected]