What is a break clause?
A break clause in a commercial lease will allow either the landlord or the tenant (or both) to bring the lease to an early end. The right to break may arise on one or more specified dates (‘break dates’) or may be exercisable at any time during the term of the lease (known as a ‘rolling break’). For example, if you were to take or grant a 10 year lease, you may want to incorporate 3 yearly break dates.
Do I need a break clause?
The need for a break clause in a commercial lease is dependant on your personal circumstances and the circumstances surrounding your business. For tenants, a break clause provides flexibility to end the lease early if the premises no longer suit their requirements and can help future-proof against changes in the rental market and any material growth of (or downturn in) their business. For a landlord, a break clause allows for the removal of troublesome tenants, future expansion and/or redevelopment of their building or premises and also provides an easy way to obtain vacant possession for any possible future sale.
Break clause conditions
A break clause can only be properly exercised if any conditions that have been attached to it have been satisfied. If any conditions are not complied with the exercise of a break will be legally ineffective and the lease will continue either until the end of the term or until the next break date prescribed by the lease that is validly exercised.
Some examples of pre-conditions often attached to break clauses are as follows:
- The tenant must have paid all of the rents due under the lease.
- The tenant must have complied with all covenants under the lease.
- The tenant must not be in material breach of any repairing covenants.
- The landlord must have an intention to redevelop the property.
A common condition in many break clauses is requiring the tenant to give vacant possession. This is a strict criterion for the tenant to meet and therefore the wording is often negotiated or avoided to prevent disputes arising.
The relationship between a break clause and other provisions of a lease
Break dates and rent review dates are often linked, so that, if the tenant considers a rent increase too great, they can bring the lease to an early end.
The break notice that is served on the other party will need to comply with the provisions in the lease. The lease may, for example, prescribe that the break notice is to be in writing and sent to a specific address within a set period of time. It is recommended that a solicitor drafts the break notice in order to ensure the break clause is strictly complied with.
If you need advice on incorporating a break clause into a commercial lease, or on serving a break notice, contact Natalie Betteridge (natalie.[email protected] 01242 248266) or a member of BPE’s Commercial Property team for practical advice. If you need advice with Property Litigation in this regard, contact John Carter ([email protected] 01242 248243).
