Break Clauses in Commercial Leases
Commercial leases often include a break clause allowing the tenant or landlord to terminate the Lease early.
The right to exercise the break clause may arise on a specified date or it may be exercisable at any time during the term on a rolling basis.
It is common for a break clause to be conditional. For example, a tenant may have to perform certain obligations to exercise the right of the break clause.
Failure to meet the conditions may mean that the Lease continues and the tenant has ongoing liabilities associated with the Lease.
Adhering to the conditions of the break clause is strict and can impose time consuming and financial liabilities on the tenant. An example of a failure on behalf of a tenant to meet the strict requirements of a break clause, and where the Court held that the tenant had not complied, was the almost ludicrous fact that the tenant had applied two layers of paint as opposed to three as stipulated in the Lease.
The court’s insistence on extremely strict compliance with the requirements of a break clause demonstrates how important it is to keep fully aware of the terms of the break and any time limits that may apply. Given the significant sums that may be involved it is imperative that both landlords and tenants take legal advice on their rights and obligations.
Further examples of common conditions found in break notices are:
- Compliance with all the covenants in the Lease.
- Payment of all sums due, including rent, service charge, break premium
- A requirement that the notice is served at a particular address by a specific person.
- Service of the break notice; these need to be complied with to the letter. If the Lease provides that the notice should be served on green paper, white paper will not do!
We can advise on any break notice claims you may have. The starting point will be to consider the terms of the Lease and an assessment of the factual position. We will work with you to determine the next steps and seek the most appropriate resolution for you, be this through settlement or formal litigation through the court.
