Commercial Leases: Hot Topics29 April 2014

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Commercial Leases: Hot Topics

ChairKevin Hoy,Head of Real Estate

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Time to Split - Exercise of Break Options

Nicola Byrne,Senior Associate

e: nbyrne@mhc.ie

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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

Keeping the Peace: Re-Entry of Commercial Premises

Eimear Collins, Partner

e: ecollins@mhc.ie

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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: ecollins@mhc.ie

Nicola Byrne,Senior Associate

e: nbyrne@mhc.ie

Kevin Hoy,Head of Real Estate

e: khoy@mhc.ie