Break Clauses Overview

What is a break clause?

A break clause allows a landlord or a tenant to give notice to end the tenancy early. Break clauses are written into the lease and will only be binding if agreed on completion of the lease. There is no standard format for a break clause though it should confirm that notice is only allowed to be served to break on or after a certain date. If there is more than one tenant or one landlord, then all parties must agree to end the tenancy early, unless the lease specifies otherwise. Excision of a break clause can be denied where there is a trivial breach of lease conditions.

Repayment of rent, service charge and insurance

If a break clause is exercised, and the break takes effect, then the lease should require the landlord to repay any rent, service charge or insurance that has been paid by the tenant in advance for any period after the break takes effect.

Types of break clause

A break clause can be ‘landlord only’, ‘tenant only’ or either landlord or tenant. A landlord has a very limited use of a break clause unless the lease is contracted out of the 1954 Landlord and Tenant Act.

Can you withdraw a break notice?

As the break notice terminates the lease, you are unable to reverse it if you have agreed to a break notice. A new lease will need to be entered into if the parties wish to re-enter into a lease.

What to do if a break clause is challenged?

A common reason why a break clause is challenged in the courts is due to the fact that there is uncertainty within the drafting. If a break clause goes on for years, is at a high expense, or has strict provisions around serving the break notice, then the court may consider it to be unreasonable. You would need to speak to a litigation solicitor regarding the same if this happened to you.

How do I serve notice of a break clause?

We would always recommend seeking independent legal advice if you need to serve notice. Notice provisions should be written into the lease and will confirm by who, and on what day, notice needs to be served.

Conditional break clauses

Break clauses can be conditional upon certain events happening. Where a break clause is conditional upon a specific event (such as reaching 2 years into the term) or conditional upon compliance with the conditions, then any break notice served will only be effective if the pre-conditions to which the break clause is subject are complied with.

Reasonable break clauses

Leases will often refer to break clauses which are dependent on ‘reasonable’ or ‘material’ compliance with the conditions of the lease. The drafting of the clause should be carefully considered here. The safest way to draft a break clause is to follow the Lease Code and confirm to both the landlord and tenant that exercising a break should be just like the ordinary end of the term in respect of any internal repairs that are required by the lease, and the landlord should be able to pursue damages for breach of the lease.

Important takeaways

If you are going to serve notice, then please ensure that you instruct an experienced property litigator to assist. Our litigation department can assist with your query. Any break premium as specified in the lease should be paid in good time – do not leave this until the day of the break date. The full quarter/month’s rent should be paid, and the landlord should confirm receipt before a break notice is issued.

Frequently Asked Questions

What is a break clause in a commercial lease?

A break clause is a provision within a commercial lease that allows either the landlord, the tenant, or both parties to end the lease before the contractual expiry date, provided the agreed conditions are met.

Who can exercise a break clause?

This depends on the wording of the lease. A break clause may be exercisable by the landlord only, by the tenant only, or by either party.

How much notice is required to exercise a break clause?

The required notice period will be specified in the lease. Common notice periods range from three to six months, but the exact requirements must be followed strictly.

Can a tenant exercise a break clause at any time?

No. A break clause can only be exercised on the dates or within the timeframes specified in the lease agreement.

What happens if a break notice is served incorrectly?

If a break notice is not served in accordance with the lease provisions, it may be invalid. This could result in the lease continuing and the tenant remaining liable for rent and other lease obligations.

Examples

Example A

Tenant relocating due to business growth

A technology company signs a 10-year lease with a tenant-only break clause after five years. Four years into the lease, the business expands rapidly and requires significantly larger premises. The tenant serves a break notice in accordance with the lease terms and vacates the property on the five-year break date, avoiding five additional years of rent liability.

Example B

Landlord exercising a break clause

A landlord has retained the right to terminate the lease after five years because they intend to redevelop the property. The landlord serves a valid break notice and regains possession of the premises to commence redevelopment works.