Hot Topics 29 April 2014 1 Commercial Leases Hot Topics Chair Kevin Hoy Head of Real Estate 2 Time to Split Exercise of Break Options Nicola Byrne Senior Associate e nbyrnemhcie ID: 200901
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Slide1
Commercial Leases:
Hot Topics29 April 2014
1Slide2
Commercial Leases:
Hot TopicsChairKevin Hoy,Head of Real Estate
2Slide3
Time to Split - Exercise of Break Options
Nicola Byrne,Senior Associatee: nbyrne@mhc.ie
3Slide4Slide5
Law
No statutory frameworkNo Irish reported case lawNo standard form lease break option provisionsNo industry accepted or endorsed code of practiceGoverned solely by law of contract
UK case law of persuasive authoritySlide6
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.”Slide7
Service of Notice
IdentityAuthorityTiming
ServiceSlide8
Discharge of Payments, Rent and Outgoings
Break paymentRent and outgoingsApportionment and overpayment
Cleared fundsSlide9
Compliance with Covenants and Conditions
Subsisting breachesMaterialityRepair and decorationAlterations
Vacant possessionSlide10
Estoppel
Landlord action or inaction can affect its legal positionLandlord strategic response to tenant engagement
Landlord estopped from denying tenant compliance by virtue of encouraging, or acquiescing in, tenant’s non-complianceSlide11
Takeaways
Take timely legal adviceIdentify the full nature and extent of tenant’s obligationsEngage
strategically with tenantSlide12Slide13
Keeping the
Peace: Re-Entry of Commercial PremisesEimear Collins, Partner
e
: ecollins@mhc.ie13Slide14
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 possessionSlide15
Overview
Can be stressful, intensive timeLandlord should take legal advice in advance of re-entry to minimise risk and exposureSlide16
Current attitude of landlords
Substantial increase in use of re-entry as a method of terminating leaseWillingness to consider re-entry even in complex scenariosAlternative of issuing proceedings not commercial or timelySlide17
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] Slide18
What is re-entry?
It is where a landlord physically re-enters a demised premises for the purposes of terminating the leaseService of a notice in itself is not sufficientMust actually get into the premises – no other act is sufficientSlide19
When can a landlord re-enter?
Expressly provided for in lease Common law – limited right to re-enterSlide20
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. Slide21
So when is it an effective tool?
Tenant in breachLease/common law permits re-entry Landlord satisfied to release tenant/guarantorLandlord wants vacant possessionBusiness being run from demised premises is conducive to re-entrySlide22
Section 14 Notices
In writing Addressed and served on tenantSpecify breachSpecify remedy
Call on tenant to remedy breach
Give reasonable timeSlide23
How to minimise risk
Obtain legal advice Consider issues/barriers to re-entry in respect of the specific premisesKeep element of surpriseKeep it peaceableSlide24
How to minimise risk
Solicitor send letter to former tenant post re-entry Give tenant back its goodsKeep it simple post re-entrySlide25
Actions tenant can seek to bring against landlord
Relief from Forfeiture – Can be obtained even if landlord has done everything correctlyDamages - re-entry not procedurally correct - goods which perishedSlide26
Limitations/drawbacks/risks
Not a universal panaceaCommercial leases onlyMay still have to sue tenant/guarantorsRelief from forfeitureTitleSlide27
Tenants Suing Landlords
Eamon Marray BL
27Slide28
Q & A
28
Eimear Collins,
Partnere
: ecollins@mhc.ie
Nicola Byrne,
Senior Associate
e
: nbyrne@mhc.ie
Kevin Hoy,
Head of Real Estate
e
: khoy@mhc.ie