Break clauses advice

Given the current economic climate, tenants of commercial premises are increasingly requesting that their leases contain break clauses, allowing them to terminate the lease early.  The right to the end the lease may arise on a particular date or it may be exercisable at any time during the lease term on a rolling basis.

Break clauses usually specify conditions which must be strictly complied with failing which the tenant cannot validly end the Lease.  These may include the following:- 

1.    A requirement that the tenant must have paid all the rent and any other payments due under the lease (such as service charge and insurance) up to the break date.  Tenants often make an assumption that they can apportion rent so as to pay the exact rent due up to the break date rather than paying the landlord until the next quarter day when the next rental payment would normally be due.  Care should be exercised here as most leases will not permit the tenant to apportion the rent.  The tenant’s obligation will generally be to pay the full quarter’s rent even if that covers a period after the termination of the lease.  The tenant should, therefore, ensure that all payments are made before the break date and then argue about reclaiming any overpayment afterwards.   

2.    A requirement that the tenant must not be in breach of its repairing and decorating obligations under the lease.  The tenant should, therefore, ensure that the landlord is not in a position to argue that there has been some trivial breach of the tenant’s repairing or decorating obligation.

3.    A requirement that the tenant must give vacant possession of the property on the break date.  For example, if any workmen are left in occupation after the break date then this could mean that the tenant has not given vacant possession and consequently the tenant loses its right to end the lease.

It is vital to comply strictly with any time limits contained in the break clause.  A tenant will often need to give, say, six months’ prior written notice of its intention to end the lease.  Such dates must be adhered to or the right to end the lease will be lost.

Tenants should review the terms of their lease well in advance of break dates and liaise with their landlords as necessary to ensure that they can fully comply with the strict requirements of the break clause.  Legal advice should be sought where there is any uncertainty.

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