If you need the flexibility to break your business lease; or if you believe you have a break clause in your lease and would like to use it, understanding more about the realities of break clauses could just save you enough to be able to take that cruise or dine out every weekend for a year.
A bit about break clauses:
For the purpose of this article, a break clause enables a tenant to end the lease and leave early, as if it were the expiry of the full term. They have become common, even ‘normal’ as the level of certainty in everyone’s markets has diminished. Do you know what your business will look like in three or five years, let alone in ten years’ time?
However, conditions placed on the operation of a break clause can have a catastrophic effect on the ability of a tenant to exercise the option
How conditions affect break clauses
A landlord concedes a break clause to entice a tenant to take a lease but is allowed to add ‘conditions’. The effect is that what is given with one hand is taken away with the other.
The tenant may have made compromises like accepting a shorter rent free period or paying a higher rent in the belief he has secured a break opportunity. In fact there is only cost and disappointment to come, not a break.
This is because any condition will be strictly interpreted and if not fulfilled, enables the landlord to refuse to accept notice. The lease is not broken but continues to the end. There are dozens of court reports of failed litigation by tenants seeking judgment in their favour when a landlord refuses to accept a break has been validly operated.
Conditions include the requirement to give vacant possession, to maintain the property or even to pay the rent. None is necessary to activate the clause save perhaps, for providing reasonable notice of the intention to break.
At first sight, you might say “well fair enough, the landlord doesn’t want to let the tenant off if there is a breach of a lease clause”.
Conditions relating to lease clauses are all unnecessary because, by definition they are already in the lease along with another clause saying you can’t escape from a breach at expiry.
Don’t be caught out with a conditional break clause in your lease. Ensure, preferably at “Heads of Terms” stage, that it is worded in the simplest terms without conditions whose purpose is nothing more or less than to stop you from operating that break clause.