Break Clauses in Commercial Leases

In a televised address at 5.30pm on 23 March 2020 made to the risk posed by Covid-19, the government ushered in a new way of living and working for more than 60 million people. Employers have ever since been looking at their working environment to assess whether it is both safe for their employees to return and also economically sustainable for both the short and long term survival of their business.

The UK was not prepared for the overnight introduction of a mass working-from-home system but some employers have been relieved to find that the working from home model is a viable alternative for some of their employees. This has made redundant the need for large expensive office spaces in city centres or retail parks.

It is important that tenants take legal advice before entering into their lease and be looking to their existing lease to see if they negotiated a break clause. Even if they have, it may be a conditional break clause and exercising it may not be straightforward. Failing to exercise the break clause properly may mean the break notice is invalid and the opportunity to terminate the lease is missed with the next one not coming around again potentially for a number of years.

What is a break clause?

A break clause in a lease allows for either the landlord or the tenant (or both) to end the lease before the expiry of the contractual term. Landlords will do everything they can to try to avoid a tenant breaking their lease and a period of loss of rent and vacant premises. Any failure on behalf of the tenant to comply will be used to prevent the tenant from determining their lease early.

Typical conditions attached to a break clause include but are not limited to the following:

  1. The correct amount of notice must be given to the landlord of the tenant’s intention to break the lease.
  2. A break notice may need to be in a prescribed form and served in accordance with the notice conditions as set out in the lease.
  3. The tenant must have paid all of the rents due under the lease either when the break notice is served or by the very latest the break date.
  4. The tenant must have complied with all of the tenant covenants under the lease. If the tenant is aware of any breach, they must seek to rectify these as soon as possible so as not to render the break notice invalid.
  5. The tenant must give vacant possession and the lease may require reinstatement of the premises by the break date.

Tenants should:

  1. Take expert legal advice when agreeing Heads of Terms and certainly before entering into a lease;
  2. Regularly reviewing the break dates in your lease so one is not missed;
  3. Take legal advice on the contents of a break clause and allow for plenty of time to consider the precise requirements of the break clause.

Negotiating the right terms for your business from the outset and making sure you comply with any break clause in your lease are very important and the future survival of your business may depend on it.

Due to the coronavirus pandemic and the huge impact it is having on both commercial landlords and tenants we are extending our monthly commercial property legal clinic and are offering free daily telephone appointment slots for the foreseeable future. Commercial Property solicitor Osman Dervish will try and answer any questions you have regarding your legal position during this current crisis. If you need advice please book your appointment via Calendly. 

Bretherton Law have been serving people and businesses in Hertfordshire for over 50 years. Our experienced Commercial Property team will give you honest, professional advice.

 


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