Break clauses in Business Leases
“Break Clause” is the name given to a clause in a lease allowing the tenant or landlord to terminate a lease early.
Exercising a break clause ends the lease. This can be useful if, for example, you are staring a new business and you aren’t sure you will need the lease for the whole term. The right to break the lease may arise on one or more specific dates, or be exercisable at any time during the lease on a rolling basis.
Usually the right to break may only be exercised if any conditions attached have been satisfied (for example, providing vacant possession). A break clause will be very tightly interpreted by the courts if there is a dispute and any conditions must be strictly performed. Because of this it is a good idea to get professional advice well before exercising the right – these are just some of the points to watch for:
• Once a break notice has been served, it cannot be withdrawn unilaterally, so you must be sure you want to break the lease.
• You must comply with all the requirements in the break clause. If you don’t you will lose the right altogether
• Serve the break notice in good time and strictly in accordance with the terms of the lease. If there are two or more tenants, usually the break clause must be exercised by all of them.
• Keep evidence of the method of posting or delivery of the notice. If there are no service provisions in the lease, you should ask the landlord to acknowledge receipt.
• Pay any outstanding sums due, including interest, in cleared funds by the due date, even if these are in dispute. Payment can be made on a ‘without prejudice’ basis and the matter disputed later.
• Remember that there may still be general obligations that apply at the end of the term of the lease, which will need to be complied with before the break date. For example, the lease may require the tenant to remove signs, reinstate alterations and redecorate the property.
• If the break date falls within the middle of a rental period, check whether the lease requires the landlord to refund any of the rent, service charge and insurance rent that you may have paid in advance. Unless there is an express provision in the lease, the tenant is not entitled to a refund.
Robert Enticott, Head of business services.Business, Commercial Property, General, George Ide, News