Friday, 21 December 2012

The importance of drafting an effective break clause

In today's market, commercial property tenants are continually looking for a better deal to protect their future business interests. A business can change significantly over a small period of time therefore tenants need peace of mind that they have a ‘get out clause’ if ever needed.

What happens when a tenant is tied into a lease for 10 years or more, but their business has changed causing them to move premises or even cease trading? You will often find that a carefully drafted lease will include a break clause, enabling the tenant to bring the lease to an end part way through the agreed term.

When I was asked to draft a break notice for a tenant halfway through the term of the lease, I thought it would be a relatively simple task, taking only a small amount of time. However, when I realised what was at stake for the client, I knew it wasn’t a straightforward task.

The consequences of an invalid break notice can cause the tenant to be tied into the current lease for the remainder of the term, or until the next break date (if there is one of course – there may not be!). This has huge cost implications for the tenant, particularly if they have already agreed to a new lease at different premises. A tenant could face paying rent on two premises for a period of five years plus - not the situation the tenant's lawyer wants to be faced with!

Even when a lease has a break clause, oversight of a minor point can cause the tenant to be tied in for the remainder of the term. For example, a break clause may insist on vacant possession, therefore, if any items are left behind (even a desk), the tenant may still be tied to the lease. Therefore, if you are the tenant or the landlord, a carefully drafted break clause is extremely important. A poorly drafted break clause could break the tenant's business.

The commercial property group at B P Collins LLP can assist commercial tenants and landlords with negotiating, drafting and implementing break clauses. If ever a tenant or landlord finds themselves in the sticky situation where they have a fight on their hands in relation to service of the break notice, the property litigation group has specialist knowledge in this area too and are on hand to advise. 

Posted by Gemma Hunter, trainee in the property practice group.

Gemma Hunter -

Gemma started her training contract with the firm in October 2011 having studied Law and Criminolgy LLB at the University of Sheffield and the LPC at the College of Law, Bloomsbury.

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