What is a commercial lease break clause?

A commercial lease break clause grants to either the landlord or tenant, or both parties, the right to terminate the lease before its original end date, subject to specific conditions. The precise wording is critical, as courts interpret these clauses strictly. Break clauses are essential tools for operational flexibility, but they remain legal minefields where even minor technical errors can invalidate an exit attempt.

Types of break clauses

There are various types of break clauses that can be included within a commercial lease. These include:-

• Fixed date break – this allows termination on a specific agreed-upon date, such as the third or fifth anniversary of the lease.

• Rolling break – this permits termination at any point during a specified period, usually after an initial “lock-in” period, provided that the required notice is given.
• Conditional vs. unconditional – unconditional breaks allow exit simply by giving notice, whereas conditional breaks require meeting specific criteria (e.g. that the Tenant has no rent arrears) for the termination to be valid.

Conditional break clauses

The Courts interpret break conditions strictly and partial compliance is typically insufficient. Conditions that are often stipulated in break clauses include:-

• Vacant possession –  the Tenant must remove all people, personal property (chattels), and legal interests (such as sub-tenants) by the break date. Leaving even minor items like partitioning or rubbish can defeat the break.
• Financial compliance – all rent, insurance premiums, and service charges must be paid in full by the Tenant up to the break date. This includes sums which are for a period beyond the break date. See our comments later concerning considering provisions requiring that the Landlord refunds any such sums following the termination of the lease.
• Repair covenants – many break clauses require the property to be in a state of “good repair” or “material compliance” with lease covenants. This is often the most contested condition.

The Break Notice process

A break notice process is the formal procedure for a Landlord or Tenant to end a lease early using the break clause contained in the lease. The process usually involves the following:-

1. A notice period, for example most commercial leases require six to twelve months’ written notice to terminate the Lease early. There are usually strict deadlines here – missing a deadline by a single day renders the notice ineffective.
2. Method of Service – the lease usually will specify exactly how the notice must be delivered (e.g., hand delivery, recorded post, or specific email addresses).
3. Irrevocability: Once a valid break notice is served, it generally cannot be withdrawn without the other party’s express consent.

Drafting considerations

There are various drafting points that either party might want to consider. For example, a Tenant should want to ensure that the break clauses addresses apportionment of sums to be paid prior to the break i.e. the Lease should explicitly state that any rent, service charge or insurance rent paid in advance for the period after the break date must be refunded by the Landlord within a specified period.

In order for a Landlord’s break clause to be effective, the Lease must be excluded from the security of tenure provisions of the Landlord and Tenant Act 1954. This requires notices to be served on the Tenant (and Guarantor if there is one) prior to the commencement of the Lease and for the Tenant (and Guarantor if applicable) to give a statutory or simple declaration acknowledging that the security of tenure rights will not apply to the Lease. All parties should take legal advice in relation to the exclusion of the security of tenure rights as these may have wider ranging implications.

RICS Code for Leasing Business Premises (1st edition, 2020) (‘’the Code’’)

The Code is a standard strategy for negotiating fair break clauses in commercial retail leases. While the code is a professional standard for RICS members, it is not legally binding on Landlords who are not RICS members, but it remains a powerful tool for establishing industry best practice.

Key break clause standards under the Code

According to the Code, a tenant’s break clause should ideally be conditional only on:-

• Giving up occupation –  the Tenant should negotiate to give up occupation rather than “vacant possession”.
  • Vacant possession – this is a strict legal standard requiring the property to be free of all people, chattels (personal property), and interests.
  • Giving up occupation – this is a less onerous test where the tenant must simply stop operating from the premises and ensure no sub-tenants remain. This prevents the break from being “frustrated” by technical disputes over items left behind, which can instead be handled through the normal dilapidations process.
• Payment of basic rent: Conditions should be limited to the payment of the principal annual rent due up to the break date, rather than including service charges and insurance rent.
  • Tenants should resist conditions requiring full compliance with all lease covenants, as even a trivial repair breach could prevent the break from being valid.
• Repayment of overpaid rent: the Code states that leases should require landlords to refund any rent, service charges, or insurance paid in advance for the period following the break date.

Our Commercial Property Department has vast experience in dealing with commercial leases. If you require any assistance, please contact Andrew Williamson, Natalie Linehan, Natasha Elston or Rachael Walker