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When you sign a commercial property lease, it will state the lease term for your occupation. The lease term is how long you can stay on the premises. However, there may be instances where you wish to move out before this date, such as when you need a larger business premises or can no longer afford your current space. Where your commercial lease has a break clause, this provides a method to terminate the lease early. This article will explore how a commercial tenant can exercise a break clause in a commercial lease.
This cheat sheet outlines what you should be aware of in your lease agreement.
What is a Break Clause?
A break clause is a lease term that provides a method for a commercial tenant or landlord to terminate the lease early. You will not incur a penalty when you exercise a break clause properly.
The break clause in your commercial lease will explain how and when you can use it. This typically depends on the type of break clause in your lease agreement. When you enter into a commercial lease with a break clause, it is helpful to negotiate the conditions of use to ensure it is practically realistic to exercise. The two primary types of break clauses are:
- a fixed date notice which means you can end the lease early on a specific date or dates the clause states; and
- a rolling date notice allows you to choose when you give notice from a particular date in your lease and onwards.
Exercising a Break Clause
Understanding how a break clause operates in your lease is essential. It may be invalid if you do not exercise the break clause correctly. Since landlords will want you to refrain from exercising the break clause, they will likely pick up on where you exercise it incorrectly.
Giving Notice
When exercising a break clause, you must give the notice the lease agreement requires you to provide. After giving notice, you must continue complying with your lease obligations, including the details of the break clause. Where a break clause is a fixed date notice break clause, failure to give the proper notice can cause damage. Exercising the notice correctly includes:
- following the correct notice period;
- serving the notice correctly, such as by written letter and registered post;
- serving notice to the right person; and
- sending your notice to the correct location.
Restrictions
Often, there will be strict conditions for a commercial tenant to exercise a valid break clause. Understanding these conditions is essential before you decide to exercise the break clause. Such conditions commonly include that:
- a tenant must be up to date on all rental payments;
- a tenant must carry out all lease covenants;
- there has been no material breach of any lease terms; and
- when you leave the premises, you leave it empty of your contents so as vacant possession.
Rent Payments
Before you can end your lease early, there may be specific rent payments you must meet. Complying with these terms will ensure that you exercise your break clause properly.
Suppose you pay rent quarterly in advance and wish to exercise the break clause a week after that payment. In that case, you may still have to pay the total quarterly amount. Other commercial leases, however, may only require you to pay the amount before the termination comes into effect. Ultimately, each lease is unique and may require different rental obligations. Be sure you read and understand these properly and comply with them.
Change of Mind
Finally, be sure of your decision to exercise your break clause in your commercial lease before doing so. This is because you cannot change your mind once you opt to use it and serve notice. This applies even when you and your commercial landlord decide to disregard the break notice.
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Key Takeaways
If your commercial lease has a break clause provision, you can terminate your lease early. Be sure to exercise your break clause correctly, or else it will be invalid, and you will need to continue with the lease and all your obligations. The exact process will vary depending on the type of clause and details in your lease agreement. Once you decide to exercise the break clause, you cannot change your mind, so be sure it is the move you wish to take.
For more information on exercising break clauses, 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. Call us today on 0808 196 8584 or visit our membership page.
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