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Whether you are a landlord or tenant in a commercial lease, it is essential to understand break clauses. A break clause in a commercial lease will only be valid where you exercise it precisely as per the strict requirements. Where you fail to understand your break clause and its meanings, such as the break date, you may exercise the break right incorrectly. This can result in a hefty loss of thousands of pounds for either the commercial landlord or tenant. Also, a commercial landlord may resist exercising a break clause, yet a tenant may be keen to use it. Therefore, understanding break clause meanings allows each party to the lease to know if the use of the break clause in certain circumstances is correct or not. This article will explain what break clauses are and how they affect a commercial lease agreement.
Overview of Break Clauses
A break clause in a commercial lease means that under certain conditions, both parties may end the commercial lease. You may also hear people refer to break clauses as break notices. You or the other party may terminate the lease before the lease end term date.
It is not a standard requirement that a commercial lease has a break clause, so not all lease agreements will detail these. It is, therefore, essential for a commercial tenant and landlord to negotiate carefully before they enter a lease concerning the break clause
Timing of the Break Clause
One essential break clause meaning to understand in a commercial lease is the timing of the break clause. The timing of the break clause affects the:
- time the lease says you can exercise it; and
- correct timing of the break notice.
For example, a break clause often takes effect on the dates the break clause specifies. However, if it is a rolling break clause, it takes effect on any date during the lease term as long as three months’ notice is given to the other party.
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Method of Serving a Break Notice
A further key break clause, meaning in a commercial lease concerning the method of serving a break notice requirement. Even if you serve the break notice in time, if the way of doing so is wrong, it can invalidate the use of the break clause. For example, a break notice method may detail that the party using it must send the notice by:
- recorded delivery;
- registered post; or
- hand.
The method of serving a break notice will likely specify where you should serve it and on whom. This may sound obvious. But sometimes, the meaning of this can be confusing. For example, a landlord may have both a trading address and a registered office, and you must deliver to the lease states. Also, if you are a commercial landlord, you must check if your agent or only you can serve a break notice on your tenant.
Break Clause Conditions
The conditions associated with a break clause are crucial for tenants and landlords to understand. One of these is a tenant’s condition to return the commercial property to their landlord when they exercise a break clause. Even if all other break clause meanings have been complied with, if this one is not, exercising the break clause can be invalid.
A break clause often details that a tenant must leave the property in a tenantable condition. It may also describe that a tenant has to decorate the commercial premises during the final months of their occupation.
Rent conditions are also common conditions for the use of a break clause by a commercial tenant. Usually, this will detail that all rent due under the lease term to date must have been made by the commercial tenant. If the use of a break clause is in dispute and goes to court, the courts will interpret break clause conditions strictly.
This cheat sheet outlines what you should be aware of in your lease agreement.
Key Takeaways
If your commercial lease has a break clause, it means that one or both parties may terminate the lease early, so before the lease term ends. However, it is crucial to all the break clause meanings in a UK commercial lease. This is because if you do not complete them all correctly, the use of the break clause is invalid. This article has explained some break clause meanings. For example, it looks at the importance of the meaning of timings in a break clause. The article also describes the significance of the break clause method and the conditions attached to the use of break clauses.
If you need help understanding break clauses, contact our experienced leasing lawyers 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. Call us today on 0808 196 8584 or visit our membership page.
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