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If you are planning to let your first commercial property as a business owner, it’s important to fully understand the concept of break clauses. Failure to grasp the basics could result in your business losing substantial sums of money and facing significant inconvenience down the line. Read on as we explore how break clauses work, their typical requirements and if they can be withdrawn.
A break clause within a lease agreement for a commercial property enables either party to terminate the contract prematurely before the end of its initial term. Even the biggest brands have fallen foul of break clause misunderstandings, leaving them somewhat red-faced and tied into contracts for more years than necessary.
Although break clauses can offer peace of mind to fledgling businesses, they still need careful consideration during the initial negotiation stage with your chosen landlord. That’s because a typical break clause contains multiple strict obligations that tenants must follow to serve a valid break clause notice. In many cases, break clauses will be included at common periods of a typical five-year lease, such as 18 months and three years.
If you don’t have a break clause included in your tenancy agreement, it may still be possible to negotiate the surrender of your lease.
Typical requirements for a valid break clause notice
If you’re unsure what stipulates a valid break clause notice, we’ve put together some clear examples and rules that you must abide by for the success of your application:
- The timeframe for serving notice
Within a commercial lease, you will often be given a window to apply for a break notice. This is usually a minimum of six months before the break clause itself takes effect. An overdue serving of the break notice could see it rendered invalid by your landlord.
- How a break notice must be submitted
Your commercial lease will state how a break notice must be supplied to your landlord. This is typically recorded delivery or registered post. This means that any notices served via first class post or hand delivered would be deemed invalid.
- The correct address for serving a break notice
Your commercial lease will also state where the notice should be served, as well as how. Make sure you get the correct address, as sending it to a trading address instead of the landlord’s headquarters address could be costly.
- Who signs the break notice?
Make sure the break notice is signed by an individual with the correct authority in the eyes of your landlord.
- The condition of the property at the time of the break clause
Be sure to check the terms of your lease regarding fair wear and tear, refurbishments and repairs. If you do not complete the necessary works this could render a break notice invalid.
- Compliance with the lease terms
Many commercial leases require tenants to ensure rent payments are up to date prior to serving a break notice. Meanwhile some leases will also stipulate that tenants complete a full internal redecoration of the property in the final three months of occupation.
Can a break clause notice be withdrawn?
Don’t take the submission of a break clause notice lightly. That’s because served notices cannot be withdrawn unilaterally. Given the considerable requirements to serve a valid break notice, ensure you have considerable evidence to meet all your tenancy obligations in the event of litigation.