In leases, break clauses can serve as crucial provisions providing flexibility for landlords and tenants. These clauses allow either party to terminate the lease before the fixed term expires, subject to certain conditions and notice requirements.
Specific laws regulate break clauses with implications that both parties should consider carefully. This article highlights the key aspects of lease break clauses, outlining their effects and considerations for landlords and tenants and the importance of seeking legal advice when negotiating, drafting and exercising them.
Break clauses can be included in both residential and commercial leases. In this article, we will be focusing on commercial leases.
What is a break clause?
A break clause is a contractual provision that grants one or both parties the right to terminate a lease early. It acts as an escape route, allowing parties to exit a lease before the end of the contractual term, providing flexibility in an ever-changing business environment. It impacts all parties, so both landlords and tenants must have a clear understanding of them. The points for each party to consider differ slightly in detail, and we have highlighted some of the key aspects below.
Break clauses are typically subject to specific conditions, such as the payment of outstanding rent, compliance with repair obligations and returning the property with vacant possession.
Points for Landlords to Consider
For landlords, it is essential to draft break clauses carefully to ensure they protect their interests. Ambiguous or poorly worded clauses can lead to disputes and uncertainty. Seeking legal advice when drafting a break clause can help landlords avoid potential pitfalls.
Notice Periods
Break clauses usually require serving a notice by the party wishing to terminate the lease. The notice period can vary, but it is crucial for landlords to specify the required length of notice in the lease agreement.
Conditions
Landlords usually require tenants to have paid all outstanding rent and often other sums due under the lease before the tenant can terminate the lease early. Imposing conditions on tenants’ break rights can incentivise compliance and helps to ensure that the landlord is not left out of pocket.
Points for Tenants to Consider
Tenants must thoroughly review the conditions associated with the break clause. These conditions may include obligations such as the reinstatement of alterations, payment of outstanding sums, or compliance with repairing obligations. Failure to fulfil these conditions can invalidate the break clause and leave the tenant liable for rent and other costs.
Timing and Flexibility
Break clauses allow tenants to reassess their business needs and exit a lease if necessary. However, tenants should be cautious about the timing of exercising the break clause. It is important to consider market conditions, relocation logistics, dilapidation costs and the impact on the business before deciding to terminate the lease.
Notice Periods
Like landlords, tenants must carefully adhere to the notice requirements specified in the lease agreement. Failure to serve the notice within the specified timeframe could result in the lease continuing, with the tenant having to fulfil their obligations for the remaining term.
Seeking Legal Advice
Negotiating, drafting and exercising break clauses can have significant implications for both landlords and tenants. Due to the complexity and potential risks involved, it is strongly recommended that clients seek professional legal advice regarding any possible break rights. An experienced solicitor with expertise in property law can support and offer various services for break clauses, including reviewing the lease, clarifying obligations, guiding clients through the process, ensuring compliance with legal requirements and safeguarding interests.
If you would like to learn more or need help implementing break clauses, please contact a member of our Commercial Property team. We can help answer any questions you have and offer assistance in drafting or reviewing break clauses within the lease. Call 02392 753 575 or email [email protected].
