Renting a business premises? Beware of the break clause

Year Published: 2012

When tenants are negotiating leases of business premises we always recommend that they should insist on at least one break clause in their new lease. A break clause will enable you to vacate your business premises without the fear of any long term financial commitment, if your business fails or you are unable to transfer or assign the lease to anyone.

However, we would urge caution and suggest that any tenant seeking to exercise a break clause contacts their solicitor well before the break date to ensure that any terms of the break clause are strictly complied with, as many tenants have found to their cost that they are unable to exercise the break clause as they failed to comply with its strict terms.

Firstly, the significant dates in the lease should be checked very carefully along with the permitted method of service as set out in the lease. The tenant must ensure that the correct period of notice is given in the correct manner, as any minor defect in the notice can be seized upon by a landlord to invalidate the break notice.

Secondly, if the Landlord will agree to a break clause upon the tenant paying an agreed financial penalty, this should be paid by cleared funds to the Landlord. It should not be paid by cheque because if the cheque hasn’t cleared by the break date, then the break notice may not be valid.

Finally, break clauses can only be exercised if the tenant has paid all rent due both at the time of the service of the break notice and at the time of the break date. Any informal apportionment of the rent may be in breach of the terms of the lease and may invalidate the break notice.

As with most commercial property contracts, it is vitally important to find the ‘devils in the details’.

For further information on break clauses or other Commercial property matters, please contact Nigel Read on 0844 391 5812.

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