Break Clauses in Commercial Leases

A break clause offers a tenant flexibility in a commercial property lease, and helps protect the tenant’s future business interests if the tenant wants to move premises and end the lease before the end of the lease term. This is particularly necessary in the current uncertain economic landscape. The break clause allows the tenant to bring the lease to an end earlier during the lease term.

Benefits of a break clause

The option of having a break clause primarily benefits the tenant as opposed to the landlord the tenant has the option to end the lease early, and the landlord is left with a vacant property with no more rental income.

Conditions of a break clause

Landlords often require conditions to be attached to the break clause, and have these drafted into the break clause, including the following:

 - compliance with all the tenant’s covenants in the lease (usually including repairs to the property)

 - ensure all rent payments have been made including any other payments up until the date of termination under the break clause

Usually the landlord will require strict compliance with the conditions before allowing the tenant to exercise the break clause. It is therefore very important for the tenant to read the break clause very carefully to ensure that all the conditions are complied with so as not to give the landlord any grounds for refusal.

For the landlord to refuse a tenant exercising its break clause, case law shows that the landlord must prove that there has been a material breach of the break clause conditions.

Material breach

Several factors need to be considered when establishing if a material breach of the break clause conditions has occurred:

 - What was the actual breach?

 - What was the damage caused by the breach?

 - The tenant’s efforts to avoid breaching the condition

 - The landlord’s genuine reason for requiring strict compliance of the conditions (if the landlord is simply trying to  prevent the tenant from exercising the break clause then this could be seen as unreasonable).

Break clause Notice

One of the most common conditions in a break clause is the requirement of the tenant to give a minimum period of notice to the landlord of his intention to break the lease. This varies, but 6 months notice is not uncommon.

It is a very important that the notice is given for the correct period, since many tenants find that they have missed the deadline for giving notice and can no longer break the lease.

Notice must also be given in the correct form as outlined in the break clause. Tenants should always try to send the notice in writing and by post using registered/recorded delivery, to avoid any issues from the landlord. Even a fax, though in writing, can be rejected if it is not specifically stated in the break clause.

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