Break Clauses in Commercial Leases

Landlords will breathe a sigh of relief following a recent Court of Appeal judgment. In this case, the tenant had used a break clause to end the lease early, and wanted a refund on payments it had made in advance for rent, service charge, car parking and insurance charges.

But the court ruled it was not appropriate to imply a term into a lease that entitled the tenant to a refund in accordance with the express terms of the lease.

What is a break clause?

  • A break clause can be included in a fixed-term lease allowing either the tenant or landlord to end the lease early.
  • Exercising a break clause brings the lease to an end, but if the landlord breaks the lease, legislation is in place that may allow the tenant to stay in the property after the lease has ended.
  • Depending on how the lease has been drafted, the right to break the lease may:
    • arise on one or more specified dates; or
    • be exercisable at any time during the term of the lease on a rolling basis.
  • A break clause may only be exercised if any conditions attached to it have been satisfied (such as providing vacant possession).