Taylor Walton
Time to revisit break clauses in leases?
T e lockdowns and work from home rules have ensured another shift in the commercial property landscape,
James
Khakpour-Smith Partner Taylor Walton Solicitors
offi ces or retail units, places far greater importance on break clauses in commercial property leases. Ensuring they do what they are designed to do, for both tenant and landlord, can help avoid confl icts that can be messy and expensive. Break clauses, which allow a party to terminate
the lease before the end of the lease term, are typically required because the majority of commercial leases are agreed for anywhere between fi ve and ten years, sometimes longer. As evidenced by the last two years, a lot can change in this period and break clauses enable the landlord, the tenant or both to end the lease early, providing conditions agreed at the start, are met. When signing a 10-year lease, it might make
with many organisations now
questioning former standard working practices. T is reassessment of the space needed in leased
sense to try to agree a clause that allows the tenant to leave any time after fi ve years, as long as the agreed notice period is given. Some clauses will allow either side to exit the lease and trigger dates can be agreed in advance or roll forward annually.
The reasons for a break clause Break clauses provide greater fl exibility for both landlord and tenant. If the tenant’s business goes well, they may need larger premises and agree a new lease with the same landlord for a diff erent property. For the landlord, the break clause allows them to regain occupation
of their property for development purposes or monitor tenants and if they feel they can now attract better tenants, able to pay higher rent, they can terminate the lease. Tenants are more likely to sign longer leases if they have the
safety net of a break clause that allows them to exit early should their circumstances change – for better or worse. It can be off -putting for a tenant to recognise that the landlord can
break the lease and demand the return of their premises, but this is one consequence of the greater fl exibility demanded by tenants in the post-COVID commercial property environment – there’s going to be more give and take. When either the landlord or tenant seeks to trigger a break clause, it
can be a tough exercise and it can easily go wrong. But, in fact, the hard work starts when drawing up the lease and drafting the break clause, when experience is required to ensure it achieves what is expected. Problems can arise when either party believes the other has not
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ALL THINGS BUSINESS
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