Last edited 14 Nov 2016

Break clauses in leases

Break clauses are commonly found in commercial leases and permit tenants to terminate their lease on an intermediate date during the term of the lease.

Unless the terms on offer from a landlord are so favourable, prospective tenants will not commit to a long – term lease. Increasingly, prospective occupiers wish to retain flexibility with regard to their occupancy of premises and break clauses provide this flexibility. Business needs change over time and so do premises requirements.

Break clauses thus help in attracting tenants whilst granting those tenants the ability to relocate or renegotiate lease terms at these break points.

Depending on the overall lease term, break clauses may operate after three, five or ten years. They usually require the tenant to provide a minim period of notice to exercise the break and if this is done it usually triggers a process of negotiation with the landlord who will usually be keen for the tenant to remain in occupancy for a further period.

Providing notice to exercise the break clause is, therefore, often used as an opportunity to renegotiate the rent payable. New terms are often agreed which involve the granting of a rent free period.

However, if the notice to break is served on the landlord, and the landlord accepts it, then the tenant must vacate the premises by the due date.

Careful consideration must therefore be given to the question as to whether to break or not as the outcome for the party giving notice may not be the desired one.

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