Exercising Break Options

A break clause can be included within a lease which permits the landlord or tenant to terminate the lease early.  A right to break the lease may arise on a specified date or on a rolling basis.

A break clause may provide for certain pre-conditions to be met before a notice can be served or at the end of the notice period. Those pre-conditions can include the payment of rent, providing vacant possession, complying with the tenants obligations pursuant to the terms of the lease including any repairing obligations.

The consequences of not serving a Break Notice or serving the Notice incorrectly can be significant. This can mean that the tenant is left on the hook for the rest of the lease term and may have to negotiate a surrender of the lease for a premium. From the landlord’s perspective, it can mean that a more profitable letting or development of  the site for its own use can be prohibited.

There has been an abundance of case law in connection with Break Notices over recent years and consideration should be given to the following cases:

• Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Limited.
• Advocet Industrial Estates LLP v Merol
• PCE Investors Limited v Cancer Research UK 2012
• Standard Life Investments Property Holdings v W & J Linney Limited (2010)