Exercising a break clause

Many commercial leases nowadays contain a break clause whereby the tenant is able (subject to satisfying certain preconditions) to terminate the lease early.

This is a useful item in a tenant’s armoury insofar as it allows the tenant to walk away from a lease if its business is not performing as well as anticipated or the rent payable proves unaffordable.

In today’s economic climate, break clauses are increasingly coming under the courts’ spotlight.

Accordingly, landlords and tenant should both consider the following when considering exercising a break clause and whether it has validly been exercised:

n Parties to a lease and their advisors should make absolutely certain that a break clause is served in strict accordance with the terms of the lease and that all preconditions have been complied with.

n The courts interpret preconditions strictly. Typical preconditions are:

n Vacant possession means only vacant of all persons but also the tenant’s belongings.

n No subsisting breaches of any of the tenant’s covenants means that even a trivial breach will render the exercise of the break clause ineffective.

n All payments of rent are paid to date means that all other sums reserved as rent (e.g. service charge) in the lease must also be paid.

n Once a break notice has been served, it cannot be withdrawn.

n The tenant is not entitled to a refund of any rent paid in advance for the period after the lease has been terminated.

For all commercial property enquiries, please contact Spencer Vella Sultana, on 01243 832408, at The Owen-Kenny Partnership Limited.