Lease break clauses are common features of commercial leases which enable one of, or both, the landlord and tenant to end the lease before the expiry of the agreed contractual term. This can be valuable to a letting that requires flexibility, but often come with strict conditions.
Lease break clauses can be:
- Fixed: Where the lease specifies a specific date when the break clause can be exercised
- Rolling: Where the lease allows termination at any time after a certain period has passed, provided notice is given
- Mutual: Where the break clause is available to both parties
- Unilateral: Where the break clause is available to only one party
- Penalising: Where the break clause requires the terminating party to pay a fee, for example. a few months’ rent
Key Considerations for Tenants with break clauses in a lease
Tenants should avoid break clauses which impose too many preconditions; the more there are, the higher the likelihood the break will be successfully disputed by the landlord. The tenant should also be aware of whether the break clause, unilateral or mutual, enables early termination in favour of the landlord. This ensures the tenant is aware of, and thus avoids any actions that might trigger early termination by the other side, which could have significant adverse effects on their business operations.
Key considerations for Landlords setting break clauses in a lease
When drafting break clauses, landlords should ensure provisions are sufficiently clear and specific to ensure the tenant ends the lease only in scenarios the landlord reasonably anticipates. The landlord should incorporate provisions that adequately safeguard their interests such as a provision requiring a reasonable notice period, which will allow them sufficient time to find a replacement tenant.
Seek legal advice for your lease
Break clauses can provide valuable flexibility in a commercial lease for both landlords and tenants, but they must be carefully negotiated and properly exercised to avoid costly disputes. Whether you are a tenant or a landlord, legal advice is essential to ensure you fully understand your obligations, avoid any hidden liabilities and successfully exercise your right to break. Whether you are a landlord or a tenant, our Commercial Team is here to help you navigate the complexities of these transactions, ensuring the chosen approach best aligns with your specific business objectives.
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