In most situations a break clause in a contract offers the most benefit to a tenant who is looking to ‘break’ the contract early, rather than a landlord who can be left with an empty property to fill, as well as a gap in rental income. As a result, the break clause is not a particularly popular type of provision and this means that tenants must be careful to use the break clause properly to avoid giving a landlord any reason to declare the break invalid and the lease still binding.
Remember the onus is on the tenant - it is always up to the tenant to find out what requirements there are for the break clause to work and there is no obligation on a landlord to provide this information. Where a tenant asks a landlord for clarification and no response at all is given then this won’t excuse circumstances in which the tenant doesn’t properly comply with the clause. The only situation in which this might be otherwise is where the landlord – or their agent – has made some sort of response relating to how the break clause works, that the tenant relies on.
Notice must be served – the form of notice that is required to operate a break clause will be set out in the lease. The clause covering this should include what wording is necessary and how much time in advance the notice should be served to make the break clause work.
What else does the lease say? Most leases will contain all the conditions for operating the break clause and tenants must read and understand these before starting the break procedure. If even a single one is missed out then the break clause won’t have been effectively triggered and the tenant remains liable under the lease on an ongoing basis.
Some examples of conditions to the break clause:
1. Payments up to date. This means that any payment due under the lease – including rent, service charges, or even interest on previous unpaid rent – must be settled in full before the end of the break clause notice period or the clause will not be effective. If the lease allows payments to be apportioned then the tenant can pay a proportional amount up to the break date, if not then the full payment must still be made even if the payment period goes beyond the break date.
2. Compliance with the tenant covenants. This is a requirement that the departing tenant ensures that when the break date arrives they have complied with covenants, particularly those relating to repairs, yielding up, or putting the premises back in the condition it was when the tenant moved in. The test for ‘material compliance’ (i.e. compliance that will be enough) is objective and is based on how quickly the premises can be re-let or sold, without the landlord incurring expense or delay.
3. Vacant possession. Even if a lease doesn’t state that vacant possession is going to be required of the property on the break date, this will be implied. This means that any trading, building works, or repairs must be carried out before the break date, as if the tenant cannot give vacant possession on that date then the break clause is not valid and the lease continues to be binding.
The assumption with a break clause is often that it is something of a sledgehammer but in reality it is a fine tool that can easily be misused.
Tenants who don’t want to fall foul of a break clause must read the fine print of the lease carefully and take proactive steps in advance to make sure that they follow it to the letter.