A break clause in a commercial lease allows either the landlord, the tenant, or both to end a commercial lease early, usually on a specified date or by giving a certain amount of notice. These clauses offer flexibility but they also come with risks if not carefully drafted and understood.
For example, a tenant taking a five-year lease on a shop may want the option to exit after three years if the business doesn’t perform as expected. A break clause gives them that flexibility. However, if the clause includes conditions—such as serving notice in a specific format or ensuring all payments are up to date—those conditions must be strictly followed. Courts have consistently enforced break conditions to the letter, meaning even minor breaches can invalidate the break.
Break clause should mirror the natural end of the lease
From a tenant’s perspective, it is important that the break clause mirrors the position at the natural end of the lease. A Code-compliant lease, in line with the RICS Code for Leasing Business Premises, would typically limit break conditions to giving vacant possession and paying the principal rent due as at the break date. This approach avoids the risk of the break being frustrated by technical breaches and ensures the landlord retains its usual remedies for any outstanding tenant breaches—just as it would at lease expiry.
A code compliance approach to avoid onerous terms
Landlords may be tempted to include more onerous conditions —such as requiring full compliance with all lease covenants or reinstatement of alterations before the break date. These can be problematic for tenants, as even a trivial breach (like a missed service charge payment or a minor repair) could invalidate the break. A Code-compliant approach avoids this imbalance and promotes fairness.
Return of sums paid in advance
A well-drafted break clause should also deal with the return of any sums paid in advance, such as rent or service charges covering a period beyond the break date. Without clear wording, tenants may find themselves unable to recover overpayments, even if they vacate the premises early.
Legal advice to ensure your break clause is clearly worded
Tenants should seek legal advice to ensure the break clause is clearly worded, not overly burdensome, and includes appropriate safeguards. A properly negotiated clause can provide essential flexibility without exposing the tenant to unnecessary risk.
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