Commercial Leases: Hot Topics 29 April 2014

Commercial Leases: Hot Topics Chair Kevin Hoy, Head of Real Estate

Time to Split - Exercise of Break Options Nicola Byrne, Senior Associate e: nbyrne@mhc.ie

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

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 MORTGAGEE 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

Q & A Nicola Byrne, Senior Associate e: nbyrne@mhc.ie Eimear Collins, Partner e: ecollins@mhc.ie Kevin Hoy, Head of Real Estate e: khoy@mhc.ie