A break clause is a provision in a commercial lease agreement, which enables early termination of lease by a landlord or a tenant, or both.
Break clauses have become one of the most important aspects of acquiring office space, principally because they can provide the tenant with flexibility within their lease. However, that flexibility comes at a cost; if a tenant misses a break clause due to the way the commercial lease agreement itself has been written, then they must remain at the property for the remainder of the originally agreed lease – which could be, typically, another 5 years.
Review your break clause options 12 months in advance
Depending on the wording of the break clause, you may be required to serve notice at least six months in advance – which means that you need to be considering your options up to 12 months ahead of the break clause. KWB specialises in acting on behalf of tenants to provide professional advice on lease breaks and break clauses – our advisory service is crucial to achieving both flexibility and cost savings. We can advise not only on an approaching break clause, but also as part of the initial negotiations that decide the conditions of a break clause, before a lease is even agreed.
Break clause – a ‘game changer’ for obtaining incentives for the next five years
In the best circumstances, break clauses can provide the tenant with the opportunity to potentially renegotiate their existing commercial lease agreement. This can make a real difference, depending on the economic climate and how a tenant’s company is trading – with the possibility of obtaining incentives or achieving rental levels below the existing rent, if the marketplace is in the tenant’s favour.
Current shortage of office space gives landlords the ‘upper hand’
Sometimes break clauses are mutual, where landlords can also exercise the right to activate a break clause so that they can move a tenant within a building or eject them entirely. Security of tenure provisions, under the Landlord and Tenant Act 1954, need to be taken into consideration. Ultimately, the break clause is a very useful tool for both the landlord and tenant, in providing flexibility in a world where leases are getting shorter.
As such, it is absolutely imperative that break clauses are read and understood, well in advance of their due dates. We strongly recommend that you speak to us as early as possible, as there may be an opportunity to:
- Renegotiate your lease to save rent
- Benefit from obtaining incentives
- Cap service charges
- Introduce greater flexibility
KWB’s break clause and lease advisory service
KWB has the necessary expertise to provide advice on break clauses and other lease-related matters, including:
- Lease negotiations
- Lease renewals and restructuring
- Ending a lease early
- Rent reviews
- Mitigating dilapidations
- Reducing service charges
- Schedules of condition
- Restructuring office space
The complexity of commercial lease agreements demands the expertise, experience and market knowledge of a commercial property specialist to review all aspects. This will ensure that nothing is overlooked that could prove problematic in the mid-term or long term future.
For further information on how KWB can assist with your break clause or lease negotiations, please contact Martin Cook on 0121 233 2330 or email email@example.com.
Waterloo House, Birmingham city centre
Acting on behalf of the landlord of Waterloo House in Birmingham city centre, KWB successfully regeared the lease for a tenant planning to exercise its break clause.
We renegotiated the terms of the lease, on favourable terms for the landlord, which ensured the retention of their tenant for a further five years.
The tenant has also subsequently expanded to take further space within the building.
Want to know more?
Contact Martin Cook0121 212 5993