Break clauses in leases

Borneo Martell Turner Coulston

1st June 2019

Legal Briefing

Borneo Martell Turner Coulston

A BREAK clause can be included in a commercial lease to allow a particular party (a landlord or a tenant), to terminate the lease early.

A tenant may feel that a 10-year lease, for example, is too long a commitment for an uncertain future, therefore, they may negotiate a five-year break clause. A break clause will then, under certain circumstances, give an opportunity to end the lease early if the business plans change.

By exercising a break clause correctly, you can bring a lease to an end. If a landlord wishes to break the lease, then there is specific legislation which may allow a tenant with a business to remain in the property after the lease has ended.

The right to break a lease will depend on the way the lease is drafted, therefore, it is very important to consider the terms of the break very early on. A right to break a lease can be set on one or more specified dates, or it may be the lease states that a break can take effect at any time during the term of the lease on a rolling basis.

If a break clause is to be exercised, then there may be conditions in the lease which have to be satisfied before the break can take effect. This could be the condition of providing vacant possession or being clear of rent arrears (or both).

There are a number of practical issues that a tenant would need to consider if they wish to exercise a break clause

1. Once a tenant serves a break notice they cannot withdraw it. The tenant must make sure they are certain they intend to break the lease. If there is a mutual agreement to withdraw the break notice, this may be deemed to constitute the grant of a new lease, taking effect on the date of expiration of the break notice.

2. All requirements to exercise the break must be complied with. The party exercising the break should keep evidence that they have complied with the requirements, in order to protect their position.

3. It is extremely important that any break notice is served in good time and strictly in accordance with the requirements within the lease. It would be advisable that you take advice before taking any action and you seek advice with plenty of time before the date any notice can be served.

4. If you are serving any notice yourself, keep evidence of the method of delivery of the notice. If there are no service provisions in the lease, request the other party acknowledges receipt.

5. If the notice is being served by an agent, make sure the other party is aware of the existence of the agency and their authority to act on your behalf.

6. You should make sure that before you serve any notice, you have complied with all your obligations in the lease to date. If there are any breaches, then take steps to remedy those breaches before you serve any break notice.

7. As a tenant, you need to ensure you have paid any outstanding sums due, even if you dispute the amount. Payments can be made on a 'without prejudice' basis and the matter can be disputed later. Rent should also be paid for the whole of the rent period within which the break date falls to avoid the landlord being able to claim that all of the rent has not been paid.

8. If, as a tenant, you have agreed to carry out works to the property before the break date, ensure that the works are completed and vacant possession is given by the break date.

To avoid any issues in the future with any break clauses, where possible, it is best to consider them and take advice prior to the drafting of any lease. For more information please contact Mohammed Rahman at Borneo Martell Turner Coulston at mohammed.rahman@bmtlcaw.co.uk

Borneo Martell Turner Coulston