Break Clauses in Commercial Leases – What you Need to Know
19th May 2017
A break clause is a provision in a lease which enables either the landlord or the tenant (or both) to end the lease early and is a useful tool to successfully bring a lease to end without needing to wait for the contractual term of the lease to expire.
Landlords or Tenants (as the case may be) may be reliant on successfully exercising a break clause to protect their future business interests. In either case, the parties to a lease may be alarmed to discover just how difficult it can be to successfully exercise a right to break, with, break clauses often being a source of many disputes between Landlords and Tenants. As such, we cannot stress more highly the importance of seeking timely expert advice before serving, or upon receiving, a break notice.
The right to break may arise on one or more specified dates, or it may be exercisable at any time during the term of a lease on a rolling basis. Whenever a right to break is exercised, care needs to be taken to avoid the problems which can be caused for landlords or tenants who risk losing their right to bring their lease to an end by failing to validly exercise their right to break.
Break clauses often come with conditions and it is important any such conditions are complied with when exercising the option to break. Such conditions could include;
- The tenant must have paid all the rent (or all payments due under the lease).
- The tenant must have performed all its covenants under the lease.
- The tenant must not be in material breach of its repairing covenants.
- The tenant must give vacant possession.
- The landlord must have an intention to redevelop the property.
A right to break can be lost because of a breach of a condition, or in not ensuring a condition is satisfied at the appropriate stage whether it be prior to the notice being served, or on the break date – care must be taken.
The requirements as to the form and service of the break notice must also be strictly complied with. Generally, a notice sent by the wrong person, or to the wrong person, will be invalid and therefore careful attention must be given to who has the entitlement to send or receive the notice. The break clause may include a particular form of notice which must be used and by not doing so, an alternative form of notice which would otherwise be valid, could be rejected by the receiving party. Where no form of notice is provided it is vital that the form of notice used is properly drafted.
Sometimes mandatory notice provisions setting out how the break notice must be sent to the other party, and when it will be deemed to have been received, will apply. In other cases, the general notice provisions in the lease will apply. Again this is something which needs to be carefully considered.
Whether you are tenant or landlord exercising or at the receiving end of a right to break, seeking expert legal advice in dealing with any aspects of a break clause at the earliest opportunity can help ensure the right to break is successfully exercised and that any lengthy and costly disputes are avoided. For further advice or assistance, please contact a member of our Commercial Property team on 024 7653 1532.
About the author
Imelda Kavanagh joined Brindley Twist Tafft & James in Coventry in 2015. She is a solicitor in the Commercial team and deals with a wide range of commercial property matters.