A break clause allows a lease to be determined before the end of the contractual term. However, a break clause must be exercised correctly in order for the early termination of the lease to be valid.
When negotiating the lease terms, a tenant should ideally always try to insist upon an unconditional break. However, landlords rarely accept this and it is very common for break clauses to only be exercisable after certain conditions have been met. This is where the majority of problems arise for tenants.
Typical break conditions include the following:
The steps which a tenant must take prior to exercising a break clause can be onerous, but must be closely followed in order to avoid the risk of the break clause being improperly exercised. Failure to correctly exercise a break clause could potentially see a tenant, who perhaps has committed to occupying a new property, liable for the rent, service charge and other payments due for both properties. The financial implications of this scenario could be crippling for a tenant’s business.
There are countless examples of cases where tenants’ agents have negotiated conditions of break clauses, their lawyers have documented those conditions, and then the tenants themselves have exercised them only to find that they have actually done so incorrectly. The effect is that the break is inoperative and the lease continues until the next break date or for the remainder of the contractual term!
Tenants beware.
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