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As a commercial landlord, you must create a commercial lease agreement with your tenant for the commercial lease. This legally binding contract will detail both parties’ rights and obligations, such as the rent price, repair obligations and the lease term end date. Although, you may permit the termination of the lease before the end of the contractual term. If so, you must include a break clause in the lease agreement. This article will explain some points commercial landlords should know when considering break clauses in lease agreements.
What is a Break Clause?
A break clause in a fixed-term commercial lease agreement allows you and your commercial tenant to end the lease before the lease term expires. It will specify the formal notice each party must give if they use it. In addition, break clauses often specify other conditions a party should meet.
If you have a break clause in a commercial tenancy agreement, it may allow the right to break the lease either:
- on a specific agreed fixed date or dates;
- after a minimum set period of occupation for your commercial tenant; or
- on a rolling basis, you can use it at any point in the lease term.
Should I Consider a Break Clause?
As a commercial landlord, there are some points you should be aware of when you consider including a break clause in your commercial lease agreement. We outline these points below.
Consider Including Conditions
If you wish to include a break clause in a commercial lease agreement, you may want to include some conditions on your tenant’s use. Further, including specific conditions can protect your interest as a commercial landlord. For example, you may wish to include any of the following:
- your tenant must pay just the rent due under the lease;
- your tenants must carry out all their lease covenants;
- repairing covenants must not be breached; and
- you require your tenant to give vacant possession;
When you include conditions in your break clause, it should be clear when your tenant needs to meet them. For instance, it may be when the break date takes effect or when they give their notice. Also, including strict conditions may defeat the purpose of the clause as they may be too tricky for your tenant to comply with.
Consider Notice Periods
When considering a break clause in your commercial lease agreement, you must consider what notice period you require to use it. However, in addition to this, you will need to consider how each party should serve the notice you require.
If there is a specific way you require this done, then your break clause will need to express this. It implies that any general notice provisions on the lease agreement will apply if it is silent. However, where this is the case, ensure these are adequate for the use of the break clause.
Successors in Title
It is essential to understand that when a commercial lease includes a break clause, by law, it is automatically relevant to any successors in title to the lease. This means tenants who take on the lease from your current commercial tenant can exercise the clause. It also includes successors to your role as commercial landlords. Remember, the lease does not need to state this for it to be the case expressly.
However, should you wish otherwise, you must include a provision in the brake clause outlining this.
Underlease
With your permission, your commercial tenant may sublease part of the commercial space they lease from you. This creates a sublease. It is essential to consider this if you wish to include a break clause in your commercial lease agreement. Although usually the use of a break clause means any underlease automatically ends, this is not always the case. Sometimes, the underlease will give the tenants the right to renewal.
Your break clause can contain words to ensure that the underlease always comes to an end. For example, you may require the subtenants also to exercise the clause when your tenant does so on the head lease. Where your tenant cannot guarantee this, they cannot exercise the clause. This can benefit you as it will mean the whole premises is vacant when your commercial tenant brings the tenancy to an early end.
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Key Takeaways
A break clause in your commercial lease agreement will allow you or your tenant to end the lease before the lease term date in specific circumstances. If you include a break clause in your commercial lease agreement, there are many points to be aware of, including:
- what conditions need tenants must meet, such as leaving the property in vacant possession; and
- the effect of the clause on any underleases in the commercial property.
If you need help drafting a break clause, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A break clause is a right in a commercial tenancy agreement for either the commercial landlord, tenant, or both to end the lease before the end of the lease term.
As a commercial landlord, there are many points to consider when considering break clauses. One of these is the notice format and period required for the right to break.
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