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Break options: what you need to know before signing a new lease

Moving your business into a new property is a big decision. Whether you’re a new business just starting out or an established company looking for a change of scenery, everyone wishes they could look into the future before signing a new lease.

In today’s tough economic climate, understanding your options when signing a lease is more important than ever – particularly break options.

What is a break option?

A break option is essentially a right for a landlord, tenant or both to a lease to break the lease early, before the end of the term of the lease. There are three types of break options, a tenant only break option, a landlord only break option or an option mutually for both the landlord and tenant to have the right to break the lease early.

Break options are something to always consider when negotiating the terms of your lease. They offer you the flexibility to end your lease early, which is particularly important when starting a new venture. Break options can also be used by some tenants as a bargaining tool and therefore allow you to have a stronger position with your landlord to negotiate lower rent.

Once a break option has been agreed by your landlord, a clause will be incorporated into your lease.  Break options are subject to certain pre-conditions imposed by your landlord and these must be complied with in order for the lease to be determined. Therefore it is vital that any pre-conditions and time limits are strictly complied with. Legal advice should always be obtained before completion of the lease to ensure that you fully understand when, how and what conditions must be met before you can enforce the option to break your lease.

Things to consider when exercising a break option

It is imperative that prior to exercising an option to break your lease early, the wording of the break clause in your lease is fully understood and adhered to.

There are time limits for the exercise of a break option and a procedure which must be strictly followed. There have been many cases where the correct notice has not been given to the landlord, or the correct procedure has not been followed and a break of the lease has been deemed to be unenforceable. This could have severe repercussions which can be avoided if legal advice is obtained prior to activating the option to break your lease.

There are other implications of break options which will also need to be considered such as stamp duty. An experienced solicitor will consider all implications of an early break of the lease.

In summary, break options are important when negotiating a lease. Equally, ensuring that you understand the break clause in your lease and the notice requirements, pre-conditions and procedure is vital.

If you have any questions, or require legal advice, please don’t hesitate to get in touch with the Linder Myers Commercial Property team today. Call us on 0800 042 0700, or email us on enquiries@lindermyers.co.uk

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