Commercial Leases – What is a Break Clause?
2 May 2018 by Lisa O'Boyle
A break clause in a lease is a provision allowing either the Landlord only, or the Tenant only, or both parties to end the lease early, before the end of the contractual term of a commercial lease.
The dates on which the parties can break the lease can either be specified dates, or on a rolling basis i.e. at any time during the Lease term or at any time after a specific date.
There may conditions for the parties to fulfil before the exercise the break clause. For example, that at the date of the break, the Tenant has performed its covenants; that there are no rent arrears; that (specifically) there are no material breaches of the Tenant’s repairing covenant; and/or that the Tenant must give vacant possession of the property at the relevant break date.
The lease will set out details as to how to exercise the option to break. It is commonly exercised by one party serving on the other, a written notice at a specific time before the relevant break date e.g. 3 months before the relevant break date. The notice should specify the break date and the intention to terminate the Lease on that date. Timing is very important as the right to break the lease will be lost if not served as specified in the lease.
A break clause has the advantage of providing flexibility by giving the parties to a lease a way out before it was due to end. This flexibility could be welcome to both parties. On the other hand, break clauses can create uncertainty. If one party validly exercises a break clause, the lease will end even if the other party, at that time, did not want the lease to end.
It is very important for the parties to understand the flexibility (and uncertainty) that a break clause can bring to a lease and this is why the parties must fully understand and agree break terms before a lease is drafted. The commercial property team at Fisher Jones Greenwood are happy to advise further. Please do contact us on 01206 700113 or on [email protected].
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