Beware! A hidden trap in the 2016 R.E.I.V. Lease.

The R.E.I.V recently updated their standard commercial lease which was basically unchanged from 2003. Whilst there are several changes to the new document, one in particular needs to be considered carefully. It concerns the requirement of a tenant to give notice to vacate once the lease is three months from its expiry or has expired and has continued on a monthly basis.

Clause 22 of the lease states “If the tenant does not have an option to renew this lease for a further term or if having an option to renew does not exercise it in the required manner, then if at least 3 months before the term expires, unless otherwise agreed in writing” : sub clause 22.1 (v) states “ the landlord or the tenant may end the tenancy at any time by giving three months prior written notice”.

This clause is intended to compel a tenant who does not take up an option or is uncertain of their intentions, that they must give 3 months written notice and afford the landlord some time to relet the property. Previously, the lease only provided for one months notice in writing by either party.

At first glance this appears to be a win for the landlord. In practice it may not as it can create the following problems:

1. The tenant is not likely to have read the lease and when advised will be in a state of disbelief.
2. The tenant may claim that the clause is unconscionable and therefore unenforceable. A claim against the landlord may then ensue or an offset is sought.
3. If the landlord had intended to rely on this clause then a tenant may claim it should have informed the tenant 3 months out from the expiry of the lease or when the option renewal notice (if any) was issued.
4. The tenant may simply vacate after one months notice and refuse to pay any further. Unless the security deposit is substantial, losses will be incurred.

For landlords and agents this could be the end of what was a good relationship with the tenant, legal
action and loss of reputation.

This is not the end of the matter. The leasing agent appointed may be unaware of the notice provision and proceeds to lease the property assuming wrongly that one months notice is all that is required once a replacement tenant is secured. The sitting tenant may then turnaround and advise the agent upon receipt of notice that they need to give 3 months notice. The new lease with a new tenant is then not capable of performance and the agent and landlord risk being sued by, compensating or losing the new tenant.

How do agents and landlords protect themselves?
The following procedures are suggested:

1. When a property is first leased, if this clause is intended to be relied upon then include it in the conditions of the offer to lease. Then there is no doubt as to the intentions of the parties.
2. Consider reminding tenants of this clause in written communication concerning the exercise of option or intention to renew.
3. Ensure that the offer to lease and the lease itself with the incoming tenant includes a clause to the effect that the lease is subject to the existing tenant vacating the premises and that the landlord will not be responsible for any compensation arising.
4. Delete the clause from the lease.
5. Agree in writing a date on which the premises will be vacant up front with the sitting tenant.
6. Agents and landlords should read the existing tenant’s lease at the start of the leasing campaign.