Break Clauses in a Commercial Lease

Read the clause before the calendar

Break clauses are creatures of the lease. A rolling break operable on six months' notice at any time behaves nothing like a single fixed date break where time is of the essence. Identify who can break, on what date or dates, how much notice is required, in what form, to whom and at what address, and whether the right is personal to the original tenant and therefore lost on assignment.

Where time is of the essence — which is the default for break dates — a notice served one day late is simply void. There is no discretion and no relief.

Conditions are where breaks fail

Conditional breaks are the real risk. The courts read conditions strictly, and substantial compliance is not enough where the clause demands full compliance.

• Payment of all rents due — including insurance rent, service charge and interest, not just the principal rent
• Vacant possession — chattels, fit-out, sub-tenants and even a residual security guard have defeated breaks
• Compliance with covenants, including repair, which is close to impossible to guarantee and should be resisted at drafting or renewal
• Payment of a break premium, in cleared funds, on or before the break date

Money you may not get back

Rent paid in advance for a quarter that straddles the break date is not automatically apportioned. Following Marks and Spencer v BNP Paribas, there is no implied term requiring repayment, so unless the lease provides for it the tenant pays for occupation it never has. The same applies to service charge on account and insurance rent.

Where the break is negotiated rather than exercised — a surrender by agreement — the price should reflect the landlord's true reletting position, the dilapidations exposure and the incentive cost of a new letting. That is a valuation exercise, not a legal one.

Break, renew or renegotiate

A break date is leverage even when you intend to stay. It is the one moment when the landlord faces a void, a rent-free period and agents' fees if you leave, which is why regears are so often agreed in the months before a break. Serving a valid notice and then negotiating from that position is usually stronger than letting the date pass and asking for a reduction afterwards.