What is a break clause?
- A break clause can be included in a fixed-term lease allowing either the tenant or the landlord to terminate the lease early.
- Exercising a break clause brings the lease to an end.
- Depending on how the lease has been drafted, the right to break the lease may: arise on one or more specified dates; or
be exercisable at any time during the term of the lease, on a rolling basis.
- A break clause can only be exercised if any conditions attached to it have been satisfied at the date specified for each condition in the break clause (for example, having paid all annual rent due on the break date). A break clause will be strictly construed by the courts and any conditions must be strictly performed.
Practical issues for a tenant to consider when exercising a break clause
- Once a break notice has been served, it cannot be withdrawn unilaterally, so make sure that you are certain that you intend to break the lease. If there is a mutual waiver of the notice then a new lease will be deemed to have been granted.
- Make sure you serve the break notice on the correct person, and at the correct address. The correct person will not always be the person to whom you pay rent. If there is any uncertainty about who you should serve the notice on, you may need to serve notices on multiple people to ensure your notice is valid – if you have any doubts, you should seek advice.
- Make sure you comply with all the relevant requirements in the break clause and keep evidence of your compliance, to help protect your position.
- Ensure that you serve the break notice in good time and strictly in accordance with the terms of the lease.
- Keep evidence of the method of posting or delivery of the notice. If there are no service provisions in the lease, you should request that your landlord acknowledges receipt.
- If the notice is being served by an agent, make sure your landlord is aware of the existence of the agency and its authority beforehand.
- Consider carrying out a compliance audit with your surveyor’s advice before serving the break notice. You can then take steps to remedy any breaches to ensure compliance with the covenants in the lease.
- Consider paying any outstanding sums due, even if these are in dispute – it is a common condition in break clauses that the annual rent (and/or other payments) needs to be up to date at the break date. Payment can be made on a “without prejudice” basis and the matter disputed later, if necessary.
- If the exercise of the break clause is subject to payment of all sums due under the lease, check whether default interest may be due on past arrears. Unless you have received a demand from your landlord, you may have difficulty knowing precisely how much default interest is due. You should try to estimate the amount due and err on the safe side. If you miss any such interest, your landlord could argue you have not complied with the terms of your break clause, and the cost of sending overestimated interest is likely to be far less than the cost of remaining bound under the lease.
- Ask your landlord for confirmation of the steps you need to take to comply with any conditions. You could ask your landlord to prepare a schedule of dilapidations in relation to any repair works. A schedule of dilapidations is a list of items that are in need of repair and that you have responsibility for, due to the repairing obligations under a lease.
- If you agree to carry out works to the property before the break date, be careful to ensure that the works are completed and vacant possession is given by the break date.
- Consider asking your landlord to accept the break notice on payment of an agreed amount as liquidated damages for any outstanding breaches of covenant. Liquidated damages are a fixed or determined sum agreed by the parties to a contract to be payable on breach by one of the parties.
- Ensure that any waiver of a condition of the break clause by your landlord is made in writing, is not made “without prejudice”, and that it is clear to which condition(s) the waiver applies.
Further information
If you have any questions and/or would like advice on any Commercial Property, please speak to us at: hello@dixcartuk.com or to your usual Dixcart contact.
