The busy world of commercial property can be cruel and costly for any party. Insurance and rates can sky rocket up for the landlord, a rent increase will follow for the tenant, and by the end of it, for whatever reason, the landlord and tenant may not have much leftover (financially and emotionally) to continue business. This is where including break clauses in your commercial lease can assist you.
This article is a general introduction to break clauses in commercial leases. Reviewing the commercial lease and understanding what can and cannot be done should always be the first step before taking on general advice.
What is a break clause?
A break clause will be found in the lease, and it allows either the landlord or the tenant to terminate the lease early. This provides both parties flexibility to adjust to the present commercial environment.
The right to break is determined in the lease and it may arise from a specific date, or it may be exercisable at any time during the term on a rolling basis.
If there are joint landlords or tenants, the break clause must be exercised by all of them unless one of them has the authority of all to exercise on their behalf, although this may be overridden by the express terms of the lease.
It is also exercisable by the original party and its successors in title unless the lease explicitly overrides or changers this rule.
Conditions of a break clause
Break clauses may specify conditions for the operation of the break, such as;
- The tenant must have paid all the rent (or all payments under the lease),
- The tenant must have performed all its covenants,
- The tenant must not be in material breach of its repairing covenants, and
- The tenant must give vacant possession
The break clause should specify whether the conditions must be satisfied, at the date of service of the break notice or at the break date or both.
As to the notice provisions and how the break notice must be served, they are usually found in the lease.
Consequences of a break clause?
The break clause is effectively serving notice to break the lease, for the lease to come to an end. So, where a lease is terminated because of a break clause, any underlease granted out of it will end too.
A break clause is usually without prejudice to the rights of the other party (or either party) in relation to any antecedent breach of covenant. Therefore, despite the party wanting to break and end the lease, that party still has their right to claim for breaches under the lease.
If you are wanting to execute a break clause it is crucial that the person seeks legal advice as if the break clause is not done correctly, you might forgo your chance to terminate the lease and be stuck to a further commitment.
At Paul Robinson Solicitors whether you are a commercial landlord or tenant, we are more than happy to review your lease before you sign to make sure a break clause is included or can assist you in executing your break clause.
If you want to know more or want to speak to a member of our team, please get in touch below or call us on 01702 338338.
