Break Clauses – What Tenants Need To Know!

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Break clauses are a common part of the commercial landscape during negotiations for the grant of a lease of commercial property. Break provisions allow either the landlord or tenant, or both parties, to end the term of a lease prematurely by serving notice on the other.  They are a useful option for tenants and, in these tough economic times, they can be a lifeline. For example, a commercial tenant whose falling profits have rendered their rental payments unaffordable may be able to be released from the lease early.

The terms of a break clause can be heavily negotiated between two parties when entering into a lease and can often amount to a deal breaker. At its simplest, this is by service of a break clause on the landlord on say six months’ notice.  At the other end of the spectrum, the clause may require payment of ‘all sums due’ and compliance with all other covenants in the lease e.g. repairing and decorating covenants.

The 2007 Lease Code recommends that:

“The only pre-conditions to tenants exercising any break clauses should be that they are up to date with the main rent, give up occupation and leave behind no continuing sub-leases.  Disputes about the state of the premises or what has been left behind or removed, should be settled later (like with normal lease expiry).”

So how can a tenant protect their position? Well as is always the case when it comes to the drafting of lease terms, clarity and certainty are key. It is essential that express wording is used to adequately set out the parties intentions. A landlord will want to ensure that they are not left with empty premises that are not collecting any rents. On the other hand, a tenant will not be happy to pay for premises that they are not occupying or using.

What this illustrates is that exercising break provisions within a lease is not always as straightforward as it initially may seem. Therefore clear, precise terms will ensure that each party knows where they stand and will hopefully negate the need to go down the road to litigation.

Our Commercial Property Team offer a fixed fee lease report which will flag up any issues you may have regarding break clauses.

For further information contact our Property Solicitors on 0800 689 0831 or make an enquiry here.

 

 

 

Stacey Lakeland

About Stacey Lakeland

Stacey Lakeland is a Trainee Solicitor within the Property department at Forbes Solicitors. Stacey’s blogs cover general property matters relating to both residential and commercial property matters such as updates to legislation affecting the property sector, landlord and tenant matters, topics which relate to the construction and development sector and also issues relating to property disposals and acquisitions, to name a few.
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