Break clauses in Commercial Leases
Why should I have a break clause?
Break clauses in commercial leases can be used if you are unsure about any aspect of the property you’re renting. Perhaps you’ve moved your business and have some reservations over the area you’ve moved to, or you’re unsure if the style of building suits your business. Having a break clause allows you to get out of the lease early and move elsewhere.
If you’re starting a new business, you may want to negotiate a break clause in your lease. This gives you an opportunity to break the lease if you’re not sure whether your business will be successful – saving you time and money if things don’t go as planned.
Break clauses in commercial leases provide a level of security in case you’re not happy with your rented commercial property. You won’t be tied to the property for the full length of the lease contract, and you can often negotiate the date of a break clause before you sign the lease. This gives you the advantage of having an ‘out’ earlier in the lease, and you don’t necessarily have to give your landlord a reason for activating the break clause. This can prevent arguments and plans for negotiation if you’re determined to leave.
Dangers of break clauses
Landlords can try to add various conditions to break clauses so that you cannot break the lease if you have not kept the property in good condition. For example, a failure to paint a wall in the right way could mean you can’t activate the break lease. It is therefore vitally important that you get early advice on the terms of the break clause and how to exercise it, otherwise you could be left with the lease for longer than you planned.
It’s important to make sure that you can negotiate a break clause that works for you and your business. A solicitor experienced in commercial lease break clauses can help you negotiate with your landlord, or set out your rights if the break clause is activated. A solicitor can also help you if anything goes wrong and you feel that your landlord has dealt with your tenancy unfairly.
Break Clauses – FAQs
Who is entitled to exercise the break clause?
This is important where the tenant occupying the premises is not necessarily the individual entitled to exercise the break. You need to check whether the break clause is personal to the original tenant.
When does the break notice need to be served?
The lease may state the break can be exercised at any time (a rolling break), on a specified date, or at any time after a specified date. The break notice will usually need to be served a certain amount of time prior to the intended break date. Any deadline must be strictly complied with.
What needs to be done to exercise the break?
Break clauses are often conditional. If the lease requires absolute compliance then the tenant may not be able to exercise the break option, as even a minor breach of covenant will invalidate the right to break. It is wise to get specialist advice about this aspect.
How does a tenant serve the break notice?
Requirements for serving a break notice will usually be specified in the lease and any such provisions must be fully complied with.
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