Break clauses in commercial leases
It is common place nowadays for any tenant taking a new lease to ask for a break clause in their lease, particularly if the lease is for a term longer than 5 years. However, Landlord’s are naturally reluctant to agree to such break clauses, for obvious reasons. Many tenants do not realise though that unless the lease specifically sets out the right to break a lease, then they cannot serve notice and walk away. Even more worrying though, is those tenant’s who do have the benefit of a break clause, may not always appreciate that there are a number of conditions attached to that clause which have to be complied with.
The first place for any tenant in considering their exit options is to determine whether they have the benefit of a break clause, and if so, how it has been drafted. There are 2 main distinctions to be drawn.
- Break Clauses which arise on one or more specified dates; or
- Those which are exercisable at any time during the term of the lease on a rolling basis.
Most typically, a break clause will be for a fixed date and will require either 3 or 6 months prior notice to be served prior to the break date – it is therefore essential to ensure that matters are diarised so that important dates are not missed. If the break has to be exercised by a certain date, and the date is missed, then the right to break the lease is lost forever. As such, any tenant exercising a break right should keep evidence of the method of posting or delivery of the notice, making sure these are in accordance with the terms of the Lease.
Assuming that a break notice has been served in time, it is worth remembering that it cannot be withdrawn unilaterally, so a tenant must be sure that they actually intend to break the lease.
The final stage is to ensure you are fully aware of all of the conditions attached to the lease – does it require vacant possession to be given for example, or must the property be in a good state of repair and condition at the break date? Any conditions to the clause must be adhered to fully and completely as any failure to comply with the conditions could render the exercise of the break clause ineffective, meaning the lease will continue to run until either the next break date, or the end of the term.
It is vital that any tenant considering the exercise of a break right obtains professional advice. The contents of this article are simply intended to provide an overview of the considerations we as solicitors would ordinarily make, and it is not intended to provide any legal advice or any suggestion as to how a tenant considering its options under a Lease should proceed.
Our Commercial Property team can review your lease and advise on the opportunities available for a potential exit from the lease. If you require any advice or assistance at all, please do not hesitate to get in touch 0800 310 2000.