Break Clause: What are they and how do they work?

Break clauses are often found in residential and commercial leases. They allow a party to end the tenancy before the full term. They normally contain strict conditions that need to be adhered to; if they are not, the clause may not be deemed to have been activated.

What is a break clause?

A break clause is a clause written into a lease that allows the term to be terminated before the end of the term. They usually allow the tenant to terminate; however, sometimes, they can allow the landlord to terminate, and occasionally, both parties will be given the option. Break clauses are common practice in commercial leases due to their length; however, they can also be seen in longer residential tenancies, such as for two years or more.

How do they work?

A break clause typically contains a notice period and a specific date on which it will become active. For instance, in a commercial lease, the break clause may become active on the third anniversary of the start of the lease and require six months’ notice before this date. Break clauses in residential leases more commonly have a rolling clause, for example a tenant may be able to terminate the lease with three months’ notice after the first year of the tenancy.

Common conditions within the clause.

Break clauses can often contain strict conditions that must be met. Recent case law shows that Courts are more likely to rule against a party who has failed to comply. This would mean the tenancy would continue and not be terminated. This shows that it is paramount that any conditions are dealt with. I will highlight some of the common clauses below and what to be wary of.

The notice is to be in writing and served by post, which is more prevalent in commercial leases. The main point to be wary of here is sending the letter on the date of the clause itself. It would be best to give 3-5 working days prior to the notice to allow time for the letter to arrive.

Time is of the essence: If the deadline is missed, the clause’s right to activate is lost. It shows that it is important to act before the deadline and that no rolling break option is available.

Vacant possession: Sometimes, the clause may state that the tenant returns the property with vacant possession. This can be contentious in a commercial context, as vacant possession must be determined in advance. It would be best to agree with the other party what is meant by vacant possession when returning the property.

Payments of all sums due: This would mean that the tenant has paid all rent, service charge, insurance, and any other additional fees up to date on or before the break date. This may also include a break premium, which is a fixed sum payable by the tenant.

Compliance with other covenants: Similar to above, the tenant may have to ensure they have adhered to or not breached any covenants prior to the break date. This can be difficult for the tenant to do, so the tenant should be wary of their inclusion.

What we can do for you at Attwells

At Attwells, our Commercial Team can advise on any concerns you may have regarding a break clause or the drafting of the clause. We can also assist any party looking to activate any clause and ensure that all the correct conditions have been complied with so that the tenancy is properly “broken.” Our commercial team is headed up by Nick Attwell, a partner of the firm.

We would always advise on seeking legal advice before acting.

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