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What’s a ‘Break Clause’
A break clause is effectively a ‘get out clause’ allowing a tenant to terminate its lease before the expiry of the contractual term.
It’s important for a tenant to secure a break clause within its lease, as it’s difficult to predict the position of a business years down the line. It could also give a tenant the opportunity to re-negotiate on more favourable terms.
Timing
The lease will stipulate a notice period by which you must serve notice on your landlord. This is usually 6 months in advance, however it may be longer. It’s advisable to consider your options a year before the break date, to allow yourself ample time. My advice would be to diarise the break date, the latest possible date by which notice must be served and a countdown to that date.
The lease may also specify a certain form in which notice must be served and failure to comply will invalidate the notice.
When serving notice, remember to allow sufficient time, especially if your landlord is based abroad.
Break Conditions
Break clauses usually have specific pre-conditions which must be satisfied for a break to be effective.
A landlord may attempt to include onerous conditions, which a tenant is likely to find difficult to comply with, in turn leaving its break invalid. An example of this would be the requirement to give ‘vacant possession’. Failure to comply with these conditions will result in a tenant being tied into the lease for the remainder of the term. A break clause with difficult pre-conditions defeats the commercial objective of the clause and should be resisted.
The Lease Code 2007 stipulates that the only pre-conditions to a tenant’s break clause should be for the main rent to be up to date, giving up occupation and leaving behind no continuing subleases. Whilst the Lease Code is only a framework and provides recommendations, it attempts to achieve a fair balance between the parties and a tenant could refer to this in early negotiations, when heads of terms are being drawn up.
It’s important that break conditions are negotiated, as they are strictly construed by the Court and tend to arise as a main dispute between landlords and tenants. It’s therefore advisable to seek legal advice before entering into a lease, to ensure the option to break can be exercised, should you so wish, later down the line.
If you would like to discuss a Bespoke or Commercial Property issue or require additional information about leases or break clauses, please contact the team on 01908 660966 / 01604 828282 or email commprop@franklins-sols.co.uk.