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Ben Cobb is an Associate Solicitor in Frettens' specialist Commercial Property Team. In this article, he answers some of the most frequently asked questions about break clauses in commercial leases.
His guide to transferring a commercial lease to another business can be found by clicking this link.
What is a break clause for a commercial property?
A clause within the lease that enables you to bring your tenancy to an end before the expiry of the contractual term.
Do most tenancy agreements have a break clause?
Given uncertainty in the market in recent years, particularly following the financial crisis and then Brexit, break clauses have become more common in leases. You should check your lease/tenancy agreement carefully or if you are agreeing terms for a new lease, it would be a good idea to negotiate the inclusion of a break clause.
What does a break clause look like?
Every break clause is different and it is important that you read and understand your break clause carefully. The main types of break clauses are called rolling breaks and fixed-date break. A rolling break usually allows the lease to end at any time on giving a certain amount of notice. A fixed-date break will only permit a break on a set date, so it is particularly important that you get the service of notices correct with these type of break clauses.
How do you activate a break clause?
Again, every break clause is different. They will usually be quite prescriptive as to what must be included in the notice, who it must be served on, how it is to be served and if there are any conditions attached to the ability to break.
When can you exercise a break clause?
This will depend on the type of break clause (see above)
How do you end a commercial lease early?
If your lease contains a break clause, this would be the easiest method. If your lease does not include a break clause, other alternatives are for you to try to transfer/assign the lease to someone else (see my article on transferring/assigning a lease) if the lease permits it, underletting if the lease permits it or negotiating an early surrender of the lease with your landlord.
How hard is it to break a commercial lease?
Every break clause is different and you would need to check the terms carefully.
What is the penalty for breaking a commercial lease?
This would be specified within the break clause, but it would be rare to see a penalty.
How much does it cost to break a commercial lease?
Frettens are able to offer a fixed fee service in reviewing and advising on your lease and end of terms provisions, drafting the break notice and serving it on your landlord. Please call or email me to discuss your options.
Can I back out of a lease I just signed?
You usually just can't back out of the lease, as it is a commitment for the entire term. If you are having difficulties, you should discuss this with your landlord to see if they are able to assist. If your lease has a break clause, you can exercise that or try one of the other alternative referred to above.
Can a landlord exercise a break clause?
You would need to check your lease to see if it includes a landlord's break clause.
Legal advice on breaking a commercial lease
Once you have served a break notice, it cannot be withdrawn so you should be sure you want to end the lease.
Break notices can be quite tricky as the break clause is often very prescriptive as to what is required. What you may consider a simple mistake in the notice may render it invalid and if it is not served in the prescribed way, this can also render it invalid.
If there are time limits within the break clause these are strict time limits and even being a day late would render the notice invalid potentially leaving you "on the hook" for years to come. Break clauses often contain conditions, so you should satisfy yourself that you are able to meet any specified conditions within the break clause.
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Related articles
You may also find these articles on commercial property of interest:
Transferring or assigning a commercial lease to someone else
Lease or licence - what's the difference?
