Can you break a commercial lease?
Break clauses offer the option to end a commercial lease early under certain circumstances. Many tenants and landlords assume a break clause offers flexibility, but strict conditions often make them difficult to exercise in practice.
In this article, we explain how break clauses work, key conditions to watch, the common pitfalls and how to avoid losing the right to break a commercial lease.
Need advice on commercial leases? Please contact Mitin Bhalsod who will be happy to advise.
Key points to know about break clauses in commercial leases
- A break clause is a contractual provision that can be included in a commercial lease allowing it to be ended early without financial penalties
- Break clauses can only be used under certain conditions (e.g. on set dates during the tenancy)
- Break clauses can either be one-way (meaning only either the tenant or landlord can choose to end the lease early) or mutual (meaning both tenant and landlord have this right)
- The wording of break clauses must be carefully negotiated to balance security and flexibility
- You should always seek specialist legal advice when negotiating a break clause, so you can be confident the terms meet your needs
- You should also get expert legal help when exercising a break clause to avoid any roadblocks or avoidable delays
- Even if you do not have a break clause, it may still be possible to negotiate the early end of a commercial lease with the right legal support
- Alternatively, you may be able to transfer the lease or sublet to someone else
How do break clauses work?
A break clause is a legal provision written into a lease allowing it to be terminated before the end of the lease term. They can usually be used either on a certain date or dates partway through the tenancy, or after an agreed period has elapsed. There will usually be other conditions that must be met for the break clause to be used.
Examples of typical conditions for break clauses
Typical conditions for break clauses include:
- Occupation of the entire property being surrendered
- Rent payments being up to date
- No breach of any lease covenants by the tenant (although tenants should seek to limit the scope of such conditions)
- No continuing subleases
- An agreed notice period for the break clause to be exercised
Common pitfalls when dealing with break clauses
There are various problems that can occur when dealing with break clauses, such as:
| Issue | Solution |
|---|---|
| Dispute between landlord and tenant over whether the conditions have been met | Conditions should be clearly drafted in the lease agreement and expert advice taken before exercising the clause |
| Disagreement over whether rent and other costs due to the landlord are up to date | Tenant’s liability for rent and costs when exercising the break clause should be clearly set out in the lease agreement. |
| Difficulty contacting a landlord to serve notice | Agree who to serve notice, where to serve notice and how to service the notice and ensure these details are set out clearly in the lease |
| Dispute over rent and costs due for any period after the break clause has been exercised. | Include provisions in the lease on how rent and costs will be handled should the break clause be exercised, including when the Landlord will refund the Tenant on any additional rent paid after the break date |
How to exit a commercial lease early without a break clause
If your lease does not include a break clause, you may still be able to agree voluntarily with your landlord to end the lease early. This might involve paying an early exit fee.
Alternatively, you may be allowed to transfer the lease to someone else by ‘assignment’, meaning they take over the lease for the remainder of the lease term. Another option is to sublet the property to another tenant, although this does mean you would remain legally liable for the rent and any other lease conditions.
How Longmores can help with break clauses in commercial leases
At Longmores, we regularly assist landlords and tenants with all aspects of commercial leases, including break clauses and other grounds for lease termination. Drawing on decades of specialist expertise across our team, we can help you to achieve the right outcome for your business interests in the right way for your circumstances.
For expert advice on commercial leases, please contact Mitin Bhalsod who will be happy to advise.
Please note, the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.
