Beware of the Break Clause
Our team of property lawyers say that it is not uncommon for a lease of commercial property to contain a break clause in favour of the tenant.
It is, however essential that any tenant with the benefit of a break clause is able to exercise it, otherwise the tenant may be left paying the rent for a property that they no longer want for the full term of the lease.
It is often the case that break clauses are conditional upon the tenant having paid the rents reserved by the lease (not just the annual rent, but insurance rent and service charge), the tenant having observed and performed the tenant’s covenants of the lease (including redecoration) and leaving behind no continuing sub tenants.
Such conditions can be a minefield for a tenant as the Courts will strictly construe a break clause and any conditions attached to it. If the conditions of the break clause are not fulfilled, the break notice will be invalid and the lease will continue until expiry.
The Code for Leasing Business Premises in England and Wales 2007 (“the Code”) recommends that the only pre-conditions to tenants exercising any break clause should be that they are up to date with the main rent, give up occupation and leave behind no continuing sub-leases. Disputes about the state of the premises, or what has been left behind or removed should be settled later, like with a normal lease expiry.
Compliance with the Code is not compulsory when a lease is being prepared. The best protection for a tenant is to ensure that the wording of the break clause complies with the Code. If it is not possible to agree such wording the tenant should take great care when exercising a break clause to ensure that any conditions within the clause are met.
