What Is A Break Clause In A Lease?
Dec 12 2019
Commercial leases are often designed to last for several years – most commonly five and ten years. This is great as it allows the landlord to earn money over a fixed term, and tenant is guaranteed somewhere to base their business. However, this can cause several problems, as if the landlord needs to regain possession of the property for redevelopment, or the tenant’s business fails or needs to relocate, they may not be able to until the lease term is up. As a result, to deal with these potential problems, a break clause is often included in a lease agreement to terminate a commercial lease early. But what exactly is a break clause in a commercial lease and what does it entail?
A break clause in a lease allows either the landlord or tenant (or both) to terminate the lease early if certain conditions are met, which are often outlined in detail on the lease agreement. Most break clauses will specify the precise form which a break notice must take and may impose specific requirements, including how and where to serve the break notice and whether there are financial penalties attached to the break clause.
There will usually be pre-conditions attached to a break clause which can include clauses that require the tenant to serve minimum notice periods, paid all the rent or other payments due under the lease. This does not only refer to rent; the landlord can also include any service charges and insurance premiums that need to be paid.
Some of these pre-conditions include the following:
- There may be a clause stating that the tenant must have complied with all of its covenants under the lease. A condition such as this can be extremely onerous on a tenant and has often prevented a tenant from exercising a break clause, as it is not unusual for a tenant to have breached a lease during the term.
No matter how trivial the breach, a landlord can use this as an excuse to frustrate a tenant and prevent them from being able to terminate the lease.
- Another clause that can often frustrate matters is a clause that states that the tenant must give vacant possession. This requires the tenant to remove all fixtures and fittings and their belongings and to make sure that any subtenants have left the property.
- A tenant may also be required to remove any alterations they have made within the commercial property and reinstate the premises so that they are returned in a similar (or the same) condition to how they were found.
Photo credit: Alexander Raths / Shutterstock
RELATED CONTENT: What to Look For in a Commercial Lease Agreement?
A common question asked by tenants is, “how much notice do I have to give my landlord?”, but there is not one answer that fits all. This is entirely down to your landlord and is often outlined in your lease agreement – if you are unsure, make sure you read through your lease thoroughly.
As a result, in order to successfully end a lease early, tenants should follow these 5 pieces of advice:
- Never leave it to the last minute and ensure that there is plenty of time to deal with the requirements of the lease.
- Never ignore the requirements relating to service of the notice.
- Instruct a firm of Surveyors, such as Savoy Stewart, to provide advice on prevailing market conditions.
- Obtain legal advice on what they need to do to ensure that they have the best chance of success and instruct their lawyer to serve the notice to the landlord.
- Take expert legal advice before agreeing the heads of terms with the landlord’s agent and insist that the exercise of the break clause not be subject to the pre-conditions.
If your lease agreement had no break clause, the only way to get out of your tenancy agreement early is by mutual agreement with your landlord or tenant.
In this circumstance, a landlord is well within their right to come to an agreement if the tenant agrees to an early release fee or pay a set period of rent to ensure the landlord has enough money to cover lost rent and council tax.
Feature image credit: Zerbor / Shutterstock