Why Break Clauses Can Be Expensive For Tenants?

Although it can be an advantage for tenants to have a break clause (allowing them to terminate their lease before the end of the term), they must give careful consideration to the wording and operation of the break clause otherwise it could end up being very expensive.

Ideally, break clauses should be without any restrictions, but most do specify conditions for the operation of the break. If the tenant fails to comply strictly with any such conditions it will be prevented from exercising the break clause and will therefore remain as a tenant until the end of the term.

Typical conditions include:

• The tenant must have paid all the rent (or all payments due under the lease).
• The tenant must have performed all the covenants.
• The tenant must give vacant possession.

A condition may be either absolute or qualified. If the condition is absolute, any subsisting breach (no matter how trivial) that is not remedied by the relevant time will prevent the tenant exercising the break clause. If the condition is qualified, the tenant is then required to have "reasonably" or "materially" or "substantially" complied with its obligations. In this context, “reasonable” means that the tenant must have behaved during the whole of the tenancy in a way that a reasonably minded tenant might well behave; “material” or “substantial” compliance is an objective test and will be assessed by reference to the ability of the landlord to re-let or sell the property without delay or additional expense.

The tenant may, of course, ask the landlord to waive a requirement to comply with a condition. The waiver may be made in writing or orally, or a waiver may be inferred by conduct (provided the landlord knows (a) all the material facts, (b) that it has the right to choose between waiving and not waiving and (c) the legal effect of making each choice).