Break clauses in commercial leases enable a landlord, tenant or both parties, to bring a lease to an end earlier than the end of the fixed term. It is for the parties / their agents to negotiate before a tenancy starts whether a lease will include break clauses, and if so, who might be able to exercise them. For example, you might agree a 20 year lease of commercial premises, giving only the tenant the opportunity to exercise the break clause by serving notice to terminate the lease on its 5th, 10th and 15th anniversary.
A break clause can be an invaluable asset for example if a tenant’s business is struggling and they know they can’t afford the rent long term or at the opposite end of the spectrum if their business is thriving and they need to move to bigger premises.
The current pandemic has impacted most businesses, some far more significantly than others. Being unable to operate your pub or restaurant business, yet still liable to pay rent, is potentially financially crippling. Covid 19 has forced change in the workplace, with many people being required to work from home and led to business owners reviewing their future office needs. Reviewing the provisions of your lease might give you an early exit strategy.
As a tenant, your lease might allow you to break the lease and dramatically cut your expenditure. If you have a break clause but would prefer to stay, the mere fact that you could break the lease (and potentially leave your landlord with empty premises) might provide a negotiating platform to re-negotiate a rent reduction, if you stay.
Given the uncertainty regarding the economy as we transition out of the pandemic and the current restrictions, it is unlikely that many landlords would see any benefit in breaking their leases. It would be prudent however for landlords to review their leases to see whether they have break clauses and what any trigger dates may be so that they can assess their vulnerability to their tenant exercising a break clause, with little or no prior notice. Forewarned, is forearmed!
The information contained in this article provides a general overview of the current position in relation to the subject matter. It does not constitute legal advice and should not be relied upon in relation to any specific legal problem.