March 18, 2021
Leases often contain provision for a break clause by either the tenant or the landlord or both of them. This permits the lease to be brought to an end early (determined) and can be based either on the occurrence of a specific event or at specified times during the term of the lease. Depending on the terms of the lease, this right may be personal to the original tenant. The ability to break the lease may have particular advantages to a tenant if their circumstances have changed and/or the tenancy is no longer commercially viable. From the landlord’s perspective, the tenant breaking the lease may present a range of problems, not least the risk of not being able to find a replacement and having to shoulder the intervening costs. Therefore, although many tenants exercise a break clause by agreement with the landlord, in other circumstances landlords may be reluctant to agree and may attempt to use legitimate legal methods to prevent the break being effective.
Therefore, it is important that, as the tenant, you carry out the break process correctly or it will not be valid and may be rejected by the landlord.
You will need to check if there are any pre-conditions. For example, a common pre-condition is that the tenant will give vacant possession on or before the break date. This will include the removal of any tenant-installed alterations and the property being returned to the physical condition specified in the lease.
Some leases require that the tenant is only granted a break on the condition that the tenant has complied with all covenants in the lease; this may quite onerous and a landlord could use a trivial breach to deny the tenant the right to break the lease. Break clauses are also usually dependent on the full payment of rent. You should be careful to ensure that if you pay rent quarterly in advance and the break date falls between rent payment dates that you do pay up to the end of the quarter even though you will not be in occupation at that time. You should attempt to ensure that when the lease is drafted there is an express clause permitting the recovery of unused rent covering these circumstances.
Timing and Service
You must also ensure that any notice requirements are fully met in particular the timing and format of the notice. You may find a draft blank notice attached to the lease. The lease will specify who and where the notice is to be served and this must be strictly followed. You should keep evidence of the method of delivery of the notice.
The Effect of a Break Notice on an Undertenant
If you terminate the headlease by a break notice then any underlease is also terminated so this should be considered carefully and we would recommend you obtain legal advice.
The Effect of the Landlord and Tenant Act 1954
If you are afforded the protection from the Landlord and Tenant Act 1954 (i.e. you have not contracted out of the provision), you may only terminate a lease in accordance with section 24 of this Act and a break notice will be seen as a notice to quit for the purposes of this section.
What happens if you change your mind?
Once you have served a break notice you are unable to withdraw it unless both parties agree. However, if this is the case you need to be aware that it will be deemed that a new lease is created with effect from the expiry of the break notice.
Because of the potential pitfalls in exercising a break clause correctly, tenants would always be advised to seek legal advice well before any break notice is planned.
Wallace Robinson & Morgan Limited are based in Solihull & Dorridge and serve clients across Birmingham and the West Midlands, Warwickshire, Worcestershire and further afield. Our team of Company and Commercial Lawyers are happy to help if you would like advice about break clauses or any other issues concerning the drafting of leases or their terms.
If you would like to discuss your matter, please call 0121 705 7571 and ask to speak to a member of the Company and Commercial law team or email us at email@example.com.
This article is for general information purposes only. It does not constitute technical, financial, legal advice or any other type of professional advice and is no substitute for specific advice based on your individual circumstances. We do not accept responsibility or liability for any actions taken based on the information in this article. For more information, please click here.