Commercial Leases: Hot Topics

Commercial Leases: 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: nbyrne@mhc.ie

3

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

Keeping the Peace: Re-Entry of Commercial Premises Eimear Collins, Partner e: ecollins@mhc.ie

13

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

27

Q & A

28

Eimear Collins, Partner e: ecollins@mhc.ie

Nicola Byrne, Senior Associate e: nbyrne@mhc.ie

Kevin Hoy, Head of Real Estate e: khoy@mhc.ie