Break clauses are one of the most powerful, but sometimes misunderstood tools, in commercial leases. Whether you are a landlord trying to maintain rental income or a tenant seeking flexibility, understanding how break clauses work is crucial to avoiding costly disputes.
In this article, Kate Samuel, Senior Associate in our Commercial Property team, explains the function of break clauses, the risks associated with them, and what both parties should consider before exercising one.
What is a Break Clause in a Commercial Lease?
A break clause is a provision in a commercial lease that allows either the landlord, the tenant, or both to end the lease early, usually on a specific date or after a set period of time has passed. This gives parties flexibility to respond to changing circumstances, such as market conditions, business performance, or redevelopment plans.
Common Types of Break Clauses
- Mutual Break Clause: Either party can end the lease early.
- Tenant-Only Break Clause: The tenant can terminate the lease (more common).
- Landlord-Only Break Clause: The landlord can terminate early (typically for redevelopment or sale).
Break clauses can be:
- Fixed Date: The clause can be exercised only at a specific time (for example, the end of year 3).
- Rolling: The clause can be exercised at any time, after a certain point, with notice.
Common Conditions Attached to Break Clauses: What Tenants Must Comply With
Break clauses usually include conditions, and failing to meet them can invalidate the break. Common ones include:
- Notice Period: Typically, three to six months prior written notice before the break date is required.
- Vacant Possession: The tenant must vacate the premises entirely - this includes removing all items which belong to the tenant.
- No Arrears: All rent and other payments (including service charges and insurance) must be paid up to date.
- Compliance with Covenants: The tenant may need to be in full compliance with all lease obligations.
Warning for Tenants: Courts take a strict approach to conditions. Even minor breaches (e.g., leaving behind a few items or miscalculating rent) can invalidate your right to break the lease.
Key Considerations for Commercial Tenants
- Check the Break Conditions Early
Review your lease well in advance and seek legal advice to ensure all conditions listed in the break clause are met. - Serve Notice Correctly
Follow the break clause and service of notice procedure to the letter. A notice sent to the wrong address, in the wrong format, or served using the wrong method can invalidate the break notice, leaving you liable to continue your tenancy. - Ensure Vacant Possession
Don’t leave personal property or sub-tenants behind. Even unused furniture could be grounds for a challenge. - Document Everything
Keep a paper trail of compliance, especially payments and correspondence.
Key Considerations Landlords Should be Aware Of
- Monitor Tenant Compliance
If the tenant fails to meet any conditions in the break clause, you may be able to challenge their break notice.
- Plan Consider If and When to Carry Out a Schedule of Dilapidations
If the tenant has been in occupation for some time, or has made alterations to the property, then consider appointing a surveyor to generate a Schedule of Dilapidations to notify the tenant of items that need to be rectified before they vacate, and what the cost will be if they do not comply. - Plan for Voids
If the break notice is valid, be ready for potential income loss and marketing downtime. - Be Commercial
Sometimes, it is better to negotiate a clean exit than engage in costly legal disputes.
- Be Transparent
Consider proactively reminding tenants of break clause conditions, especially where their compliance helps protect your reputation or occupancy rates.
Legal Consequences of Exercising a Break Clause
If the lease contains a break clause and it is exercised correctly, one must bear in mind the following consequences:
- No penalty (generally): Exercising a break clause as per the lease terms usually allows termination without penalty, provided all conditions are met.
- Conditions and Costs: The tenant must comply strictly with the break clause requirements, such as giving proper notice, paying all rent and other charges up to the break date, and returning the property in the required condition (including repairs or dilapidations).
- Break Penalty (sometimes): Some leases may require a one-off break penalty or forfeiture of a deposit, but this is not common.
- Other Costs: Tenants may face costs for moving, reinstating alterations and legal fees.
- No Withdrawal: Once a break notice is served, it generally cannot be withdrawn unless the landlord agrees.
- Failure to Vacate: If the tenant fails to vacate after validly exercising the break clause, they may be treated as a trespasser and liable for ongoing rent and legal action.
Recent Case Law Highlight
In Marks and Spencer v BNP Paribas (2015), the UK Supreme Court confirmed that tenants cannot automatically recover overpaid rent if they break partway through a rental period, unless the lease explicitly allows it. This underscores the importance of clear drafting and legal advice before exercising a break clause.
How We Can Help
Break clauses offer flexibility, but they can also be legal minefields. For tenants, the key is early preparation and precise compliance with all conditions. For landlords, protecting your position requires careful scrutiny of the tenant’s actions and a pragmatic approach to risk management.
At Blanchards Bailey, our expert Commercial Property lawyers provide practical, commercially focused advice to safeguard our clients’ interests and minimise legal and financial risks. If you require tailored legal advice on drafting, reviewing, or exercising a break clause, please contact Kate Samuel on 01258 483614, or email kate.samuel@blanchardsbailey.co.uk
You can also visit our Commercial Property webpage for more information.