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‘Break clause’ warning over commercial leases

An expert is warning businesses to follow the rules when ending a commercial property lease early.

A break clause is a provision commonly built into a lease to allow either a landlord or tenant to end the lease early.

The clause may allow for termination on certain dates in the life of a lease, or at any point. It is usually conditional, for instance on rents being paid up to the date of the break, or an obligation to vacate the premises.

Any conditions in the clause will be strictly enforced by a court, and failing to meet them can result in a continued liability for a property’s rent and other payments.

This has been made clearer thanks to a recent High Court case which saw a tenant fail to comply with the rules of the break clause – namely the removal of partitions – and was judged to have failed to exercise the break clause properly.

Sophie Coane, solicitor in the Commercial Property team at regional law firm Napthens, is warning of the importance to check any conditions placed on a break clause both before signing a lease and serving the break notice itself.

She said: “A common issue when serving a notice to exercise the break clause is that many will contain a condition requiring a tenant to give vacant possession. This can be difficult to define but it is important to have a clear idea of exactly what is expected of the tenant upon termination of the lease.

“In some cases (depending upon the wording of the condition) a tenant may be obliged to remove fixtures and fittings they have added over time. This can be a difficult area of law but if legal action is taken, the courts will take a strict line when deciding whether break clause conditions have been met properly.

This highlights the need for prompt legal advice – well in advance of the time that needed to serve a break notice –  so that strategies can be put in place to ensure compliance with the conditions.”