Break clauses in a commercial lease: how to negotiate one and use it

What is a break clause?

A break clause gives the tenant, the landlord or both the right to end a lease before the end of its term (RICS Code, Part 3 para 2.3). A ten-year lease with a tenant’s break at year five lets you leave after five years without finding someone to take the lease over. This guide covers leases of business premises in England and Wales.

The clause should say four things clearly:

• Who can break: tenant only, landlord only, or either (RICS Code, Part 3 para 2.3).
• When: a single date, several dates, or any time after a set date (a “rolling” break); the RICS Code refers to “the dates (or range of dates) when a party can end the lease”.
• How much notice: the lease sets it, and the RICS Code lists “the length of prior notice to be given” among the things a lease should specify. Check your lease for the exact period.
• Any conditions you must meet for the break to work (RICS Code, Part 3 para 2.3).

The RICS Code for leasing business premises, the professional standard surveyors follow when agreeing heads of terms, says these points should be clearly specified. Its recommendations on break terms are best practice (the Code uses “should”), not law, and not every landlord follows them.

What are break conditions, and why do they matter?

The lease sets the conditions for a break to be effective, and the RICS Code says they should be clearly specified. If a condition says the break only works if you have complied with your obligations, a small failure on the break date can be enough to keep you in the lease for years. These are the conditions to look for:

The RICS Code recommends that, unless stricter terms were agreed in the heads of terms, a tenant’s break should be conditional only on paying the basic rent due before the break date, giving up occupation and leaving no subtenants or other occupiers, with disputes about the state of the premises settled later.

What does vacant possession mean?

The RICS Code recommends that a tenant’s break be conditional only on paying the basic rent due before the break date, giving up occupation and leaving no subtenants or other occupiers (RICS Code, Part 3 para 2.4). “Vacant possession” is a different, lease-drafted condition, so check exactly what your lease says.

That is why a softer wording, “give up occupation”, is safer for tenants. If the lease insists on vacant possession, plan the move-out early, keep keys and access records, and take dated photographs on the day you leave.

How do you serve a break notice?

Follow the lease exactly: who the notice goes to, the address, the method allowed, the notice period and any required wording. The RICS Code says the lease should clearly specify the break dates, the length of notice and any pre-conditions (RICS Code, Part 3 para 2.3). A notice served on the wrong company, at the wrong address or a day late can fail.

Worked example (illustrative figures). The lease allows a tenant’s break on 24 June 2028 on “not less than six months’ prior written notice”. The dates below are an example, not a rule.

How the last day is worked out depends on the exact words, so ask your solicitor to confirm the last date for your lease rather than working it out from this example.

Do you get rent back after a break?

Not unless the lease says so. In 2015 the Supreme Court decided, in Marks and Spencer v BNP Paribas, that a landlord did not have to refund rent paid in advance for the period after the break date where the lease said nothing about it. The RICS Code recommends that leases require landlords to repay rent, service charge and insurance paid for any period after a break, but that only helps if the clause is in your lease.

Where the lease has no refund clause, rent paid in advance for the period after the break is not repaid (Marks and Spencer v BNP Paribas [2015] UKSC 72); RICS Code, Part 3 para 2.5 says leases should require repayment. A worked example:

Worked example (illustrative figures). Rent is £60,000 a year, paid quarterly in advance: £15,000 on 25 March for the 91 days to 24 June. The break date is 24 April. About 60 of those days fall after the break, roughly £9,890 of rent, which you won’t get back without a refund clause. And if the lease makes paying the full quarter a break condition, you have to pay it for the break to work.

What if the landlord has a break?

A landlord’s break is a risk to your business, especially if you plan to spend money fitting out. Ask when it can be used, how much notice you get, and whether it is limited to a stated reason such as redevelopment.

If your lease has security of tenure under the Landlord and Tenant Act 1954, a landlord’s break notice doesn’t end your right to stay on its own: under section 24 the tenancy continues until it is ended in accordance with the Act. If the lease is contracted out of the Act, the break can end your occupation outright.

What to agree before you sign

• A break date that matches your business plan, and how much notice you need to give.
• As few conditions as possible: ideally rent paid, occupation given up and no one left in occupation.
• A refund of rent and other sums paid for the period after the break date.
• Any break payment or loss of a rent-free period stated as a fixed figure.
• Notice clauses that say clearly who to serve and how.

Break clauses are much easier to fix in the draft than to argue about later. Have the lease checked by a solicitor before you sign: we introduce you to an independent SRA-regulated solicitor who can review it.