Considering the practicalities of Break Clauses
Break clauses within a lease provide the Tenant or Landlord with an option to terminate the lease and exit the property before the expiry of the contractual term. This is often referred to as a ‘break clause’.
A Landlord break clause is far more unusual, and in this article we will focus on break clauses from a Tenant’s perspective.
It’s entirely typical for break clauses to be conditional i.e. to require the Tenant to satisfy, comply with and discharge specific obligations before the break can be deemed effective. Any failure to do so could result in the Tenant’s attempt to exit the lease failing. In those circumstances, the Tenant would remain obliged to observe and comply with the terms of the Lease until its determination.
Examples of those conditions are:
- to provide a minimum period of notice usually between three and six months
- to pay the rent up to the expiry of that notice
- to give up occupation or deliver vacant possession
- to pay a break penalty
- to have complied with all tenant covenants in the Lease.
Clarity affords focus
The parties’ legal representatives should ensure that the wording of the break clause is precise and that there is no scope for ambiguity for uncertainty.
Break clauses require strict compliance – all conditions must be satisfied however obscure, bespoke or unnecessary they may appear. A failure to pay due regard to the detail will almost certainly result in the right to break being lost.
It’s essential for the details of the break to be clearly and succinctly explained to a Tenant so that in due course, the process is followed correctly, and the break is effectively invoked.
Triggering the break
The lease may specify:
- what form a break notice must take
- whether the notice needs to be signed and by whom
- on whom the notice should be served
- where the notice is to be sent
- how the notice is to be served
The Tenant should diarise the break date and the date by which the notice must be served, and also seek legal advice before attempting to exercise the break.
If the Tenant has served a valid break notice and satisfied all of the break clause conditions, the lease will terminate on the break date. The Landlord may also be required to return any surplus rents to the outgoing tenant on expiry of the break notice.
To break or not to break…
If you feel that you would benefit from a conversation regarding the issues raised in this article or if you need any assistance or advice in relation to break clauses, leases or commercial property matters please contact a member of our commercial property team and find out more about financial planning services and more.
