Break Rights

It is common for Tenants to want to have the fall back position of being able to end the Lease prior to the expiry of the contractual term.  Tenants may wish to end the Lease earlier if it transpires that the Property is too big, too small, or that the business simply does not work out as originally thought and/or does not generate the profits that were anticipated.

Tenants like to have the certainty that they are going to be in a Property for a minimum period, but also to have the certainty that they can end it if things do not work out right.  In the converse Landlords seek to tie a Tenant to the contractual term without any break rights for as long as possible as that enhances their investment value.

If considering the break right or consideration does need to be given to the length of the Lease having regard to the potential Land Transaction Tax/Stamp Duty liability.  At present additional Land Transaction Tax/Stamp Duty may be payable for taking a longer Lease.  That may be particularly relevant where the Lease contains a break clause and the break clause is exercised as the Tenant would not be able to recover any Land Transaction Tax attributable to the period of the Lease term remaining at the time of the break clause being exercised.  It may for this reason be preferable to consider whether a shorter Lease should be taken and to rely on rights to renewal Lease, but also taking into account the Landlord upon renewal substantiating grounds for refusing a renewal tenancy.

Surrendering the Lease is the only other way the Tenant can end the Lease early.  The Landlord would normally have absolute discretion on whether to accept a surrender and may seek to charge a premium in the process of agreeing to a surrender.

 

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