Break clauses in commercial property leases can be of real benefit to both landlords and tenants, as they give a degree of flexibility to bring ongoing lease obligations to an end if circumstances change during the contractual term of the lease.

However, that degree of flexibility only goes so far, and can easily be lost as a result of mistakes made when exercising the break clause.

Failures to comply with timeframes, service provisions and conditions can all result in the break not taking effect and the lease continuing. This can have huge financial ramifications for the party trying to break the lease.

If the party breaking the lease is the tenant, they will remain liable for all rent and other outgoings payable under the terms of the lease. If they have sourced alternative premises in anticipation of the break taking effect they may have to pay two lots of rent for two separate leases.

If a landlord unsuccessfully tries to break a lease they may have to put redevelopment plans on hold, which could lead to having to reapply for funding and planning permission.

So, what are some of the common pitfalls to be aware of when exercising a break clause? How can they be avoided?

1. Giving insufficient notice of the break  

• What does the break clause state about how much notice needs to be given?

• What do the service provisions within the lease state about when notices are deemed served?

• Does extra time need to be factored in for serving the notice at an overseas address?

Practical tip - make diary notes in advance of the break date to allow plenty of time for deciding whether to exercise the break, and to ensure sufficient notice is given.  

2. Service on the wrong party

• Does the lease allow the break to be exercised by assignees, or was it a personal right for the original parties to the lease only?

• Are there joint landlords?

• Has there recently been a sale of the freehold or an assignment of the lease, and has the change of freeholder or leaseholder been registered by the Land Registry?

Practical tips - obtain land registry titles to check the identity of registered freehold and leasehold owners. If in doubt, serve multiple notices. 

3. Incorrect service 

• Are there mandatory notice provisions within the break clause?

• If not, what does the lease state in general about the service of notices?

Practical tips - serve the notice by way of more than just one method of service. Keep evidence of all methods of service used. 

4. Non-compliance with break conditions

• Will the break only take effect if all rent or all monies that have fallen due, as at the break date, have been paid by the break date?

• Is the tenant required to give the property back with vacant possession, or free from occupation, as at the break date?

• Does the tenant have to have complied with, or not be in material breach of, all of its covenants in order for the break to take effect?

Practical tips – in advance of the break date:

• pay any and all sums that have fallen due.

• put together an exit plan to ensure compliance with any conditions.

• Confirm if the landlord is willing to engage on issues such as outstanding repair obligations?  
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Key Takeaway 

If you are thinking about exercising a break clause, plan ahead to give yourself sufficient time to serve the notice and to ensure compliance with any specific service requirements and any break conditions.  

Speak to a solicitor 

Breaking up may be hard to do, but it isn’t impossible, so if you are a landlord or a tenant and need any guidance on or assistance with serving a break notice or complying with its conditions, please get in touch at hello@hagenwolf.co.uk.