Leasing Business Premises Explained - B is for Break Clauses

Posted: Friday, 10 September 2010 @ 09:10

Leasing business premises can be a real minefield for the unwary business owner. In this series of posts I shall go through the various aspects of a commercial lease to explain some of the legal jargon and also provide some lease negotiation tips along the way.

B is for Break Clauses

One of the most important clauses in a lease for those starting up a new business.

Many new ventures fail in the first two years of operation yet leases are frequently 5 years or more in length.  The premises are unlikely to be of any use if the business has failed but if you are personally named on the lease (either as tenant or guarantor) then you will continue to be personally liable for the rent.

In these circumstances, you need a get-out clause.  A break clause entitles you (and also sometimes the landlord) to bring the lease to an end early.

There are two different types of break clause - fixed and rolling.

A fixed break clause gives you the right to end the lease on one or more stated dates in the future.  Notice (typically between 3 and 6 months) usually has to be given to trigger the break clause.  It is absolutely critical, therefore, that notice is served correctly and in time to ensure you don't lose your right to end the lease early.  You should always ask for your lawyer's help in serving a break clause as the consequences of making a mistake with the notice may be paying rent on premises (and complying with all the other obligations such as repair and decoration) for several more years.

A rolling break clause is much better from a tenant's perspective as the lease can be brought to an end at any time provided the required notice is given.  It's much more difficult to persuade a landlord to agree to a rolling break, however, as it gives the landlord much less certainty of income.

If you do manage to negotiate a break clause in your lease, make sure there aren't a string of conditions that need to be met before the break clause can be exercised.  A requirement that you have paid the rent up to date may be fair enough but one that requires you to have complied with every clause in the lease will mean it will be very easy for the landlord to challenge your right to end the lease.

Look out for the next instalment - C is for Covenants

As ever, for further advice on commercial premises contact me on 01926 629005.

Steven Petty, Commercial Property Solicitor

This blog is not intended to constitute legal advice, nor is it intended to be a complete and authoritative statement of the law, and what we say might be out of date by the time you read it. You should always seek legal advice to confirm whether or how any information in this article applies to your particular situation. We offer a free telephone consultation to discuss your particular circumstances.

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