Many business tenants may like to include a break clause in a commercial lease, to provide them with the flexibility to end the lease should the premises no longer be suitable for whatever reason. However, landlords may also want to consider the benefits of including a break clause even if the tenant doesn’t ask for it. Break clauses can be operable by either the tenant, the landlord or both.
A break clause allows a commercial lease to be ended early but only when certain conditions have strictly been met.
With any commercial lease it is important to ensure a break clause is drafted clearly to avoid any ambiguity for either party at a later date, which may make the break clause inoperable. It is also very important to interpret the wording of the break clause correctly and to follow the conditions given in the break clause to the letter in order to successfully bring the lease to an end.
If you are the tenant and you wish to exercise your right to serve notice to break then make sure you are aware of all the conditions relating to how the notice should be served and any other matters such as payment of rent and service charges and moving out all your employees, stock, furniture and equipment before the break date.
The break clause will detail the time frame in which the notice should be given. Always make sure you give the landlord the correct notice period, which is typically between 3 – 12 months before the break date given in the break clause, but check the wording of your lease carefully to be sure.
Tenants also need to ensure they have met all the terms of the lease including repair and reinstatement obligations and that all payments for rent, service charge and insurance rent are up to date. Failure to observe any of these will give the landlord grounds to contest the exercise of the break clause.
Sometimes leases include the payment of a premium to operate the break, which is usually paid in place of a condition requiring compliance with some of the tenant covenants.
The existence and conditions for operating a break clause in a lease are all decided at heads of terms stage when entering into a new lease and during the lease negotiations, and will appear as a separate clause in the lease, and so should not come as a shock to tenants nearer the time.
It is entirely up to the tenant to ensure what has to be satisfied to operate the break as the landlord has no duty to assist or answer questions.
Common mistakes which tenants make are to miss the deadline for serving the break notice, serving the notice on the wrong person, calculating the wrong dates in the break notice and failing to provide vacant possession on the break date.
Missing the break or failing to satisfy the conditions of the break clause could be an expensive lesson for a tenant who then has to remain at the premises paying rent and service charge and carrying out repairs to the premises up to the end of the full term, so it is worth taking specialist legal advice well before the break date to ensure it goes ahead smoothly.