Break clauses in commercial leases

Break clauses are typically included in long commercial leases (typically leases of 10 years or more) and are generally drafted to allow either the landlord or tenant to terminate the lease early, although they can be landlord or tenant only. It is more common for tenants to want to exercise a break clause than landlords.

Break clauses typically require technical compliance to be legally effective and this is an area which often results in disputes. Most commonly, the landlord will claim that the clause is ineffective because the tenant is in breach of the lease and/or that the tenant has made a procedural or technical error in the formalities for exercising the right to break correctly.

Our property litigation solicitors advise tenants and also landlord clients on break clause terms in commercial leases, exercising a break clause correctly and options where there is a dispute. Please do get in contact if you have break clause dispute.

How break clauses work

A break clause is typically triggered by a specific event, such as a fixed date or the occurrence of a particular circumstance. Once the trigger event occurs, the party wishing to terminate gives the other party a specified period of notice to terminate the lease early.

If notice obligations are correctly complied with, the second requirement for tenants will typically be for them to be fully compliant with the lease terms and in particular :-

• Payment of all outstanding rent and other charges.

• Returning the premises in the condition required by the lease, including restoring any alterations made and general condition of the premises.

How dilapidations cause problems with break clauses

Disputes may arise over the interpretation of specific terms in the lease, such as the definition of "good repair" or the extent of the tenant's repair obligations. More generally, a Landlord may claim that a break clause is not operative due to a dispute about what constitutes reasonable wear and tear, changes made to the premises by the tenant and/or the valuation of repairs. The lease may specify a timeframe for completing repairs to ensure the break clause is operative and disputes can arise if the tenant fails to meet these deadlines.

How to resolve a break clause dispute

Options which we regularly consider with clients include :-

• Negotiation - attempt to resolve the dispute through negotiation and compromise.

• Mediation - can be a cost-effective and efficient way to resolve disputes.

• Expert determination - an independent expert can be appointed to determine the extent of the dilapidations and the cost of repairs.

• Litigation - if negotiations and alternative dispute resolution fail, the parties may resort to litigation.

How we can help

Given the potential risks, if you are a tenant, please do get in contact with our Property Litigation solicitors before exercising a break clause. Our team can:

• Analyse the lease's terms well in advance of the break clause notice date - to identify potential pitfalls, conduct regular inspections of the property to identify and address potential issues and maintain accurate records of repairs, maintenance, inspections and formally communicate with the Landlord regularly about the condition of the property.

• Assist in drafting and serving the break notice correctly.

• Advise on compliance with conditions precedent and post-break obligations.

• Represent you in any disputes arising from the break clause.