Break clause in a commercial lease

Sample clause

a 5 year lease of an office suite in Bristol between Hartwell Estates Limited, a fictional landlord, and Brackenridge Design Limited, an architecture studio that wants a possible exit at month 18

9. Tenant's Break Right 9.1 The Tenant may end this Lease on the Break Date, being the date 18 months after the Term Commencement Date, by giving the Landlord at least 6 months written notice. 9.2 The break is effective only if, on the Break Date: (a) the Tenant has paid the Principal Rent due up to the Break Date; and (b) the Tenant gives up occupation of the Premises and leaves them free of its own occupiers. 9.3 No other condition applies. A breach of any other covenant does not prevent this Lease ending, but the Landlord keeps its right to claim damages for that breach. 9.4 If this Lease ends under this clause, the Landlord must refund to the Tenant within 20 business days any Principal Rent, service charge or insurance rent paid for any period after the Break Date. 9.5 Time is of the essence for giving notice and for the Break Date.

Sample wording, not legal advice.

Variants

What to negotiate

• Conditions attached to the break

  Every condition is another way for the break to fail. Tenants should resist conditions of full compliance with covenants and of vacant possession, and accept only payment of the principal rent. A landlord worried about the state of the premises can rely on a damages claim that survives the break rather than a condition that defeats it.

• Refund of rent paid in advance

  Rent is often payable quarterly in advance, so a break date part way through a quarter leaves the tenant paying for time after the lease ends. The Supreme Court held that no refund is implied, so the clause itself must say that rent for the period after the break date is repaid.

The risk of leaving it out

Without a break clause neither party can end a fixed term lease early except by agreement, forfeiture for breach or a surrender the other side accepts. A tenant whose business shrinks or moves stays liable for rent for the whole term, and its only exits are negotiating a surrender, assigning the lease or subletting where the lease allows.

Why break clauses fail

Courts in England and Wales treat a break as a conditional right, so its conditions and time limits are applied strictly. A notice served late, to the wrong address or in the wrong form may be ineffective. A condition requiring payment of all sums due can be failed by a small unpaid amount, and a condition requiring vacant possession can be failed by leaving goods or occupiers behind. In Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd, decided in 2015, the Supreme Court refused to imply a term that the landlord must refund rent paid in advance for the period after a break date.

Breaks and the Landlord and Tenant Act 1954

A business tenancy protected by Part II of the Landlord and Tenant Act 1954 does not come to an end unless it is terminated in accordance with that Part, although the tenant can still end it by its own notice to quit or by surrender. A landlord's break notice is therefore usually accompanied by the procedure the Act requires, and the tenant may be able to apply for a new tenancy. The parties can exclude the renewal provisions before the lease is granted by following the procedure in section 38A.

Where it sits in a generated document

A generated lease numbers the break as its own clause, with the break date, the notice period, each condition and the refund of rent as separate sub clauses, which gives the tenant a ready checklist. The generated draft does not cite the Act or the case law, so both are checked before the lease is signed.

Documents that carry this clause

Residential lease agreement template for a New South Wales fixed termA residential tenancy is the one agreement where most of the terms are set by statute rather than by the parties, so the useful part of a template is the additional terms and the numbers. This one is a 12 month New South Wales fixed term at $560 a week, with the bond, the entry notice periods and the break fee written out exactly as the Act sets them.Vehicle lease agreement template with a kilometre capA vehicle lease agreement sets the weekly rent, the kilometres included and the state the vehicle has to come back in. This one leases a Toyota HiAce from a trades business to a plastering subcontractor for 24 months at $185 a week including GST, with 20,000 km a year.Farm lease agreement template with grazing rights and a fencing tableA grazing lease is a bet on country, and the two things that decide whether it was a good one are the stocking rate and who fixes the fence. This three year lease over 240 hectares caps stock in dry sheep equivalents, ties ground cover to a measurement twice a year, and puts every improvement in a table with a name beside it.

Questions people ask