A right to end your commercial lease early is known as a right to “break the lease” or a “Break Right”.
Tenants generally like and want Break Rights and Landlords generally do not like Break Rights.
Break Rights are often sought by Tenants, particularly when market conditions are uncertain, and confidence in new ventures is low and a tenant perceives that there is a risk that their venture could fail such that they would no longer have a need for the property. However, confident Tenants also like Break Rights when they think they might outgrow their new property before the end of the lease.
The terms of any agreed Break Right is always a significant point of contention in the negotiation process.
It is important for all parties to be clear from the outset as to the conditions that will govern the exercise of the Break Right. Both the substance of those conditions and the wording used in the Lease (or any agreement for that matter) should be carefully considered by both parties.
Very liberally worded conditions such as that the Tenant can only exercise the Break Right if: “the Tenant has fully complied with all of the covenants in the Lease”; or “is not in breach of the covenants in the lease”; pose significant issues, as even minor issues would deprive the Tenant of the right to break the Lease, and this arguably goes too far.
A balance needs to be struck between conditions that protect the Landlord and those which do not unfairly restrict the Tenant’s ability to exercise his Break Right.
Conditions which are common in the market and not particularly contentious are: that the Tenant provides at least six or nine months prior written notice of his desire to exercise the Break Right; that rents are paid up to the break date; and that the Landlord is not left with any third party rights of occupation created by the Tenant. Other conditions, such as giving back the Property with vacant possession, or whether or not the break should also be conditional on the Tenant having also complied with their repairing obligation, whether in relation to items of material or substantial disrepair or otherwise, or any other tenant covenant in the Lease, should be decided on the particular facts of the transaction.
Unless the parties agree otherwise, the termination of the Lease should not absolve the Tenant of responsibility for earlier breaches, such as failing to give back the Property in the state of repair and condition as required by the Lease, and the Landlord should still be entitled to bring a claim for this after the event. This should enable the Lease to be brought to an end, without the parties having to first go through a full dilapidations process first.
Friday Legal Solicitors provide specialised legal services to business, including both commercial Landlords and Tenants. If you are either a Landlord or a Tenant with an issue relating to a Break Right or a Lease which has not yet been agreed, or an issue relating to the exercise of a Break Right in an existing Lease, we would invite you to contact Travis Wood on 01536 218 888 or by email at firstname.lastname@example.org, or any member of the Commercial Property Team.