Midland companies are still failing to extract themselves from property leases they no longer want - and as a result losing thousands of pounds, according to Black Country law firm George Green.
In a survey of commercial tenants, carried out by the Cradley Heath-based law firm, it found that one in four companies which tried to exercise break clauses in their property leases got it wrong.
James Coles, head of property litigation at George Green, says that getting the timing of break notices wrong and failing to follow the exact conditions laid down in lease terms are the two most common causes for companies losing the chance to break their leases.
"Missing the deadline for a break clause, or not serving on the correct person, means that tenants miss the chance to exercise it and are then stuck in a building where they no longer want to be and obliged to pay rent on it until the end of the lease, or the next opportunity to break," he explains.
"The only way out then is to negotiate a lease surrender with the landlord, or to try to assign or to underlet, if that is permitted under the terms of the lease.
"Unfortunately, there is no standard formula for working out when the dates by which to exercise break clauses fall. It all depends how the lease is drafted. It could be the term commencement date, the date the lease was signed or a number of other dates."
In George Green's survey, one company told how, without using a solicitor, it misinterpreted the date on which it should have exercised its break clause.
As a result, it missed the due date and had to continue paying rent of £40,000 on its current premises for the next year, while it had another building to move into.
According to Mr Coles, an emerging theme from George Green's research was businesses not giving sufficient thought to terminating old leases when moving to new premises.
"It's as if they are so blinded by the prospect of finally moving to a better building that they focus the majority of management time and effort on this and forget about what they need to do to leave their current premises," he says.
"It really is as vital to instruct a solicitor to act on the termination of an existing lease, as it is on a new one, and for a business to take advice on the implications of terminating a lease, as soon as it begins to contemplate a move.
"Sometimes a tenant has to give notice to break on their old premises, before being able to commit to the new one. Many falsely believe that they can withdraw their break notice if there are problems with the new building.
"They also forget that they need to allocate time to move in order to give the landlord vacant possession and they also overlook the issue of dilapidations and repairs, which again can cost them time and money they have not budgeted for."
In George Green’s survey, one business admitted that it had inadvertently breached its lease and invalidated its break clause five years into a ten-year lease on a large industrial warehouse which it was no longer using and which it had allowed to fall into a state of disrepair.
The tenant vacated, believing it had exercised the break clause and was hoping to pay the landlord around £400,000 to cover repair costs.
But, as the lease stated that the premises had to be left fully repaired, the landlord was able to frustrate the break and insist that the tenant continue to pay annual rent of around £300,000 for the next five years.
Mr Coles says: "Generally, tenants wishing to exercise a break clause and vacate a premises should start negotiating on repairs 12 to 18 months before they want to move.
"This allows an equal balance of power in negotiations before time starts to run out to make the repairs and the advantage shifts to the landlord. Negotiation is always worthwhile as it can save money.
"In one case, a tenant spent £2 million on repairs to an industrial warehouse to ensure full lease compliance and an effective break. However, the rebuild costs for the building would have been only around £3 million.
"The landlord may have accepted a cash settlement at a discount to the tenant, and carried out a lesser refurbishment which still met market standards, allowing him to successfully re-let the premises, but without any negotiation, it was impossible to know."
According to Mr Coles, break clauses with onerous conditions also cause problems for tenants and catch them out.
"Sometimes break clauses insist that the rent, or a lump sum as payment for exercising the break, must be paid at the same time as the break clause is exercised," he explains.
"So, if tenants fail to enclose a cheque with the break notice, it is invalid. Increasingly, the break notice needs to be served at the same time as the landlord receives cleared funds.
"Tenants need to be aware of this and put their solicitor in funds in sufficient time to ensure that this can happen.
"Unfortunately, tenants are still willing to sign up to conditional break clauses. We estimate that around one third of leases still have conditions attached to break clauses.
"It is absolutely imperative that for new leases tenants ensure that the heads of terms includes a statement that any break clause will be unconditional.
"We advise tenants to keep full records of their leases and schedules of condition and ensure that they consult with their lawyer well in advance of any intention to exercise a break clause.
"They should also get their lawyer to communicate with the landlord that they wish to break. By doing this, they should avoid some of the simple pitfalls associated with break clauses."