Break clauses and commercial leases

Break clauses are common in commercial leases, providing both the landlord and the tenant with the opportunity to end the lease early. However, for your break notice to be valid, you will need to ensure that you have observed the break clause requirements to the letter.

Typically, the break clause will provide for either the break to occur on a specific date, or in the case of a rolling break, at any point during the lease term upon a specified period of notice first being given.

The negotiation of a break clause is best dealt with by a solicitor as they will be able to carefully consider your specific requirements and ensure that the clause is drafted with clarity in mind.

There will be conditions which both parties may need to meet in order to exercise the break clause. From the tenant’s perspective this may include making sure that the rent is paid up to date, that the property is suitably vacated and that there are no subsisting breaches of the obligations in the lease on the break date. In some cases, even a relatively minor breach of a covenant could mean the tenant loses the right to exercise the break clause. Taking legal advice in good time before the break notice is to be served is most advisable so as to ensure that service is not defective and also that the tenant is clear as to the formalities that need to be observed to ensure that the break is effective.

From a landlord’s perspective, it is also prudent to take legal advice should you either intend to exercise an option to break or if you anticipate that a tenant may serve its option to break, so as to ensure that you are clear as to the tenant’s obligations and are best placed to take back possession with the least amount of disruption.

Landlords often like to have a break clause as it provides flexibility should the landlord’s plans change for the property, and they want to either sell or develop their property in the future. Harry Tekchandani is an Associate Solicitor at Gullands Solicitors www.gullands.com