Commercial property blog: Break clauses on property leases are not an easy option3rd December 2013

Break clauses in leases on commercial buildings can be a great negotiating tool to get better terms from your landlord but, if you really want to break your lease, don’t be lulled into thinking that just because you have a break clause it is going to be easy to walk away.

Taking advantage of a break clause is fraught with difficulty and there are many pitfalls to avoid. Serving notice needs to be done precisely as per the lease. Serve it in the wrong format, at the wrong time, or fail to comply strictly with the terms of the lease and you could be left with rent, rates and all other outgoings on a building for another five or ten years.

Landlords faced with a loss of income and an empty property will look at every possibility for claiming the break notice is invalid. There will usually be conditions with which the tenant must comply in order to complete the break successfully. They are set out in the lease, but it’s easy to make a mistake. If you can, try and negotiate an unconditional break.

The usual conditions in a break clause are that you must provide vacant possession, all demands for money due as rent must be paid in full and any specific works required in the lease as part of the conditions for the break must be completed.

John, is a client and the tenant of an industrial unit. He had his solicitor serve a break notice and was keen to get the property in good condition to hand back to the landlord, in order to avoid any dilapidations liability. His contractors were on site, undertaking various works including partial re-cladding and reinstatement of some fixtures he had removed – without permission – during the time his business occupied the unit. He rang me two days before the break date about another matter and we got onto the subject of his old premises.

He happened to mention that his contractors were going to take about another two weeks to finish off the work and I asked if they had a licence from the landlord, because if he didn’t hand the keys back on the break date and have his contractors and all their tools and equipment out of the building, the lease break would not happen.

He was quite taken aback but after speaking to the landlord’s agent, who was being rather evasive, he took the decision to pull his contractors off site. The landlord was fully aware of the situation and was no doubt hoping that the work would overrun without John realising the implications. A licence was then forthcoming and the contractors were able to go back in to complete their work.

A near miss, but one which happens more often than people realise. Make sure that you comply with all the terms of the break and on the day you are due to leave – you leave.

About the author

Paula Davies is a Partner with national property consultancy Bruton Knowles