A break clause is a provision in a fixed-term lease whereby either the landlord or the tenant can bring a lease to an end before the original agreed term expires.

They can be drafted in various ways and are a common tool used in relation to the grant of commercial leases.

In the current commercial property market, parties want as much flexibility in a commercial lease as possible in order to protect their business interests. There may come a time in the future that a commercial tenant may need to move to a smaller/larger business premises due to a change in their business or where market conditions allow for attractive rental deals to be struck elsewhere and a break clause enables them to do this.

Although break clauses are often viewed as an attractive prospect by tenants, this is not always the case from a landlord’s perspective.

Break clauses can leave landlords exposed to the risk of a vacant property and loss of rental income. It is usual for break clauses to include a number of conditions. Common examples of conditions imposed include:

• A requirement to pay all outstanding sums under the lease; 

• A requirement for the tenant to give vacant possession of the property; 

• A requirement to comply with all tenant covenants contained in the lease (which usually includes repairs to the property).

Sometimes a payment from the tenant is also made to compensate the landlord. Landlords and tenants should have certain points at the forefront of their mind both before the grant of a commercial lease and during a lease term.

New Leases 

Parties are free to negotiate and agree their own commercial terms and it is therefore vital when heads of terms are agreed that any pre-conditions on a break clause are determined at this stage. Clear legal advice at this stage will help when it comes to documenting the agreement and exercising any right to break in the future. Parties should ensure that any conditions attached to a break clause can be complied with as these have been rigidly interpreted by the courts and therefore must be strictly performed for a break notice to be valid.

Existing Leases 

If a lease is already in place and a party to the lease is considering exercising a break contained within it, the following points should be considered:

• Before exercising a break clause, a party should assess their business reasons for doing so – it may be the case that negotiations can be entered into which may lead to improved terms without having to bring the lease to an end. 

• Legal advice should be sought well in advance of any potential break to avoid any right to break being lost. 

• The break notice must be served at the right time and in the right way for it to be effective. 

• The correct party must serve the notice and the correct party must receive the notice for it to be valid (as obvious as this may sound, there have been cases in which former landlords have been served break notices in error). 

• Ensure that payments are made in cleared funds in good time prior to the break date including any accrued interest and service charge payments. 

• Make sure that all disputed sums are paid by the break date. These sums can be disputed after the break if there is any merit and although this might not sit comfortably, thought should be given to the risk to the party’s business if the lease is deemed to have continued by the courts. 

• Hold discussions with the landlord as to whether any works need to be undertaken at the property prior to termination. 

• Make provisions early to deal with any undertenants or other occupiers at the property to ensure you are able to yield up in accordance with the provisions of the break clause.

The above is a summary only and each situation should be the subject of specific legal advice. 

For help and advice in relation to the above or any other property topics please contact Sean Logue or Duncan Harty on 01228 552600 or 01524 548494.