Be Prepared when Dealing with a Break Clause

For a variety of reasons, break clauses have become increasingly common nowadays in leases of commercial property.

A break clause will normally entitle either or both parties (more often the tenant) to break or terminate the lease earlier than the date upon which the lease would otherwise expire. The break clause will normally specify the particular date or dates upon which it may be exercised and take effect.

Such an arrangement will provide the tenant with a greater degree of flexibility and allow it the possibility of finding alternative premises, if circumstances so require.

The general principle of a break clause is often agreed between the parties, or their agents, at the outset of a transaction but the detailed terms thereof require careful drafting by the parties’ solicitors.

In addition to stating when and how a break option may be exercised, the right to terminate early may be subject to a number of conditions. A landlord, for example, may wish to make the exercise of a break option conditional upon the tenant having fulfilled some or all of its obligations under the lease. While it may be reasonable for a landlord to insist upon certain pre-conditions (such as payment of rent), these pre-conditions should not have the overall effect of preventing the tenant from exercising the break option.

The exercise of a break option will normally require to be intimated by written notice and the party giving notice will require to ensure that the notice complies with the requirements of the lease if it is to be effective. A failure to comply may result in the loss of the break option.

The preparation and service of a notice should always be dealt with by a solicitor.

The recipient of a notice (usually the landlord) should also have its solicitor check the terms of the notice to ensure that it is valid and properly served.

WJM has extensive experience in acting for both landlords and tenants and is able to provide invaluable guidance and assistance in all aspects of commercial property, including leasing.

 

This article first appeared in Business Insider