Lease break clause example

What is a break clause in a tenancy agreement? What happens if you break a lease? How to successfully break a lease?

A BREAK clause can be included in a commercial lease to allow a particular party (a landlord or a tenant), to terminate the lease early. A tenant may feel that a 10-year lease , for example , is too long a commitment for an uncertain future, therefore, they may negotiate a five-year break clause.

This can be a specified date (or dates) or can be a rolling break (which enables the relevant party to break at any time during the term of the lease ). Having a break clause in the tenancy agreement allows either the landlord or the tenant to terminate the lease before the end of the contract. A 12-month lease will have a break clause which activates after six months for example. Break clauses appear in tenancy agreements that are longer than six months. Most AST agreements are at least six months long, and landlords do not have a guaranteed right to possession during the first six months of a tenancy. Example wording for a six-month tenancy break clause Here is a simple example of a six-month break clause.

At least under any conventionally worded break clause a break notice must be served by the current tenant (i.e. the person or persons in whom the legal estate of the lease is vested). That break notice must usually be served on the person or persons in whom the legal estateof the landlord’s reversionary interest is currently2vested.

A break notice is a document sent to a landlord requesting that the lease is ended in accordance with the break clause in the lease. Do I need a break notice? You will need a break notice if your lease has a break clause and you want to notify the Landlord that you want to end the lease early. Under FRS 1the lease incentive is written off over the lease term, regardless of any break - clauses which might apply.

There is also an optional exemption available in paragraph 35. UK GAAP, or restate to FRS 102. It allows both parties flexibility if any issues or changes in circumstances occur, and provides the parties with a mechanism to terminate the agreement early, if certain criteria are met.

A break clause in a commercial lease (also known as an option to determine) is fairly common. Break Clause – You must have the right to exercise the break clause. If you are not the original tenant (for example , the lease was assigned to you from the previous tenant) then you will need to check, in your lease , whether the break right is expressed to be personal to the original tenant under the lease.

Therefore the period to the break clause would only be relevant if it represents the non-cancellable period and the lessee is unlikely to extend. A practice note on the content of a typical break clause in a lease , its relationship with other parts of the lease , and issues that can arise on its exercise, including the problems with compliance with conditions and the implications arising when a break notice cannot be withdrawn. For further details on our commercial lease agreement template, see the links on the right for our commercial lease agreement template and the guide to it.

For a landlor a break clause may be considere for example , if he was considering selling the property within the lease period. How do I exercise the break clause ? Normally, the clause includes a specific date, known as the break date. It can be granted for the benefit of either the landlord or the tenant, or for both.

It allows the benefitting parties a way out if they need to end the tenancy early. It may arise on one or more specified dates or be exercisable during any time during the term (often after a specified period of time has elapsed) on a “rolling” basis. If you are not the original landlor (for example you have purchased the previous landlord’s interest in the premises) you may not be able to exercise the break right where the break right is expressed to be personal to the original landlord under the lease.

In today's challenging economic climate tenants are cutting back their businesses or looking to re-negotiate more favourable lease terms, and are choosing to exercise their break options. This is an official date in the lease , agreed by the landlord and tenant, where the lease can be ‘broken’ without anyone facing a penalty. After an initial period of months, a break clause is applicable by either party where written Notice to quit the Property can be given.

The parties will agree.