Exercising break options in leases…
If you lease your business premises, do you know if the lease includes a ’Break Option’? The unprecedented events surrounding Covid-19 are having a profound effect on business. Some businesses may need to close or downsize, some may permanently change the way they work, and a lucky few may be booming and need to expand. What all these situations have in common, is a requirement to close down or move premises.
Most businesses occupy their premises as a tenant under a fixed term lease. They must see out the full term, unless they can negotiate otherwise with the landlord, or find a new tenant to take over the premises. However, some leases provide the tenant with a “break option”, which is a right to end the lease early, provided certain conditions are met.
Conditions of a Typical Break Option:
A typical break option will allow the tenant to end the lease on a specified date only, known as the “break date”. To exercise the option, the tenant will be required to give the landlord written notice, usually at least six months in advance of the break date, although some leases specify even longer notice periods.
Other typical conditions include obligations to:
- Pay all rent and other amounts that fall due before the break date, even if they relate to a period after the break date.
- Completely vacate the premises.
- Hand the premises back in the state of repair required by the lease.
Where available, a break option is ideal for a tenant that no longer needs its premises. However, the conditions are always interpreted very strictly in favour of the landlord. The tenant must therefore fully comply with every condition, otherwise the lease will not end, and the tenant will remain liable for the rent, and all the other lease obligations, until the end of the term.
If you are a tenant considering exercising a break option in a lease, we recommend that you talk to Tollers… on 01604 258558 as early as possible. A member of the Commercial Property team will be happy to discuss the conditions that need to be complied with, and what needs to be done to ensure that the lease will end on the break date.