Businesses urged to consider break options in commercial lease
Businesses about to take on a commercial lease – or looking to renew an existing lease are urged to try to ensure it contains a break clause with an option to terminate early if their circumstances change.
The call to action from Richard Smith, head of Keebles’ commercial property department, comes amid increasing uncertainly over Brexit and a wider shifting political and economic backdrop.
He said; “Having flexible lease terms has taken on an unprecedented importance for business tenants. Whether a landlord is prepared to include a break clause will depend on the commercial negotiations and the bargaining strength of both sides, with the landlord potentially seeking an increased rent, a shorter initial rent-free period or payment of a penalty if the break is exercised.”
Richard advises companies to consider the following factors when dealing with break clauses:
1. Get the initial drafting right – tenants will want as few conditions as possible attached to the ability to break. Ideally, the only condition will be service of the break notice, although the landlord may insist on payment of principal rent and giving up occupation.
2. Break notices must be served correctly – leases contain detailed provisions relating to the timing and form of notice required which must be adhered to.
3. Any conditions must be complied with – conditions in break options are construed strictly, with non-compliance meaning that the lease will continue.
He concluded: “It is essential that business tenants seek advice both in the initial negotiation of any break clause and in exercising a break clause when required. The consequences of getting it wrong can be financially devastating.”
Keebles’ commercial property department – the biggest of its kind in Sheffield – has played a key role in developments shaping the city’s future. Clients include Harworth Group, Coalfields Regeneration Trust, Lazarus Properties, St. Pauls Developments PLC and Crossbow Investments.