Break clauses in leases have been under the legal spotlight and the cause of much litigation over the past few months.
Break clauses give a right for a landlord or a tenant to bring a lease to an end and provides a mechanism for the landlord to regain possession and for tenants to ‘walk away’. Break rights, specifically a tenant’s break right, may be subject to compliance with
a number of conditions. Recent litigation highlights that when exercising a break clause, the terms of the clause must be strictly complied with in order for the party to successfully end the lease. Failure to do so may jeopardise the success of the break.
The procedure for serving the notice set out in the lease must be strictly adhered with. The method of service in particular must match that required in the lease – for example an obligation that the notice must be sent to the landlord’s registered office even
if you usually correspond with a local office.
Tenants will be unable to exercise a break clause if any pre-conditions have not been performed – usually at the break date but sometimes also on the service of the break notice. If these are absolute conditions, the payment of rent for instance, then they
must be observed no matter how trivial. The definition of rent often includes additional payments and recent case law has highlighted the significance of outstanding payments under the lease particularly payment of service charge, insurance and interest,
even if they may only have fallen due on the break date.
A tenant is also often required to pay sums that fall due even if they relate to the period after the break date. A tenant should ensure that the clause is drafted to allow them to claim this back following the break as recent case law has highlighted that
this will not be implied.
To properly exercise a break vacant possession will often need to be given. The tenant must ensure that it can comply with this condition before the break date. Failure to do so, even if it is only rubbish bags that remain, could mean the exercise of the break
Conditions may also be qualified so that the tenant is required to have “materially” or “reasonably” complied with its obligations. This adds subjectivity into the exercise of the break and the uncertainty often leads to dispute.
There are a number of factors that both parties need to consider dependent on who is exercising the break clause. Both parties must comply with all relevant requirements and protect their position by keeping evidence of compliance.
We recommend that should you wish to exercise a break right, or if you receive a break notice, that you speak to us before taking any further steps.
For more information about any of the above or for practical advice on this or any other aspect of Commercial Property, please contact
Liz Whitfield and Berg Real Estate Team on 0161 829 2599 or email us at
(The information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice should
be obtained before taking, or refraining from taking, any action as a result of this article.)