Break clauses: a guide to best practice
A break clause is a highly consequential provision in a tenancy agreement where the landlord and tenants agree to include one as a condition of an offer. They allow either party to terminate the contract before the default end of the fixed term, offering a degree of flexibility in what is an otherwise binding contract (that typically lasts a minimum of 12 months). But just how do break clauses work, what benefits do they have, and is it something you should include in your rental contract? That's what we're looking at in this guide, which has everything you need to know about break clauses.
What is a break clause?
When a landlord and tenant enter into an AST agreement, the initial period is usually agreed at 12-24 months, with some tenants (usually families) seeking a three-year lease. At the time, both parties sign the AST in good faith, but it’s hard to predict what the future holds, and there may be a scenario where the landlord or tenant wishes to exit the contract early.
Without any type of early release clause, a tenant entitled to refuse any request to leave the property if the landlord wanted it back early. Likewise, the landlord would be due the rent for the entirety of the AST if the tenant wished to vacate the property before their fixed term expired.
Enter the break clause - a contractual mechanism designed to allow the tenant or landlord to exit the AST agreement early. A break clause usually becomes active midway through the tenancy – if it's a 12-month contract, the break clause can be activated after six months. Or if it's two years, the break clause kicks in after the first year, and so on.
By law, tenants in an AST are entitled to a minimum term of at least 6 months, so a break clause cannot be activated by a landlord until after this time has elapsed. If all parties are willing to negotiate an agreement of surrender within the first 6 months of the tenancy, this is permitted provided tenants and landlords reach a mutually agreed settlement.
How to write a break clause
The break clause is a stipulation written into the AST agreement. If you're renting out the property through a letting agent, they will most likely put the AST together and include a break clause within it as part of their service if you and the tenant have agreed to one. It's best to check beforehand with the letting agent to see what's included in the tenant-find service.
Landlords writing the AST will need to add a break clause stipulation into the agreement. If you’re handling the AST process, ensure the wording is crystal clear and the tenant understands how it can be exercised, what their rights and obligations are, and what minimum notice must be served.
The wording for a break clause may look something like the example below:
This agreement may be terminated by either the Landlord or Tenant(s) by giving to the other at least two calendar months’ notice in writing to be effective at any time after six months from the commencement date of this agreement. For the avoidance of doubt, such notice may be served by either party at any time after four months from the commencement date of this agreement, and the earliest date of vacation or date of recovery of possession will be six months from the commencement date of this agreement.
The pros and cons of including a break clause
There are several things to consider before negotiating a break clause with prospective tenants.
Flexibility is a key benefit when it comes to the break clause, for both landlords and tenants. From the landlord's perspective, you could take the property back at any time after the break clause comes into effect. So if you needed to reclaim the property for personal reasons you would have the legal means to do so under the break clause in the tenancy.
You might wish to do this as a landlord because your personal circumstances have changed since signing the initial AST agreement. Or it could be because your relationship has broken down with bad tenants who don't look after the property, with the Landlord deciding it's best to reclaim their investment.
The flexibility provided by break clauses is also non-negotiable for many tenants, particularly those whose work may require them to move at short notice. Refusing to entertain offers with break clauses may mean it takes longer to let your property, leaving you with costly void periods.
Break clauses usually work both ways, which means the tenant can also end the agreement early. This could be a source of frustration if a good tenant decides to leave halfway through a 12-month contract. It means you will need to find a new tenant and account for the costs involved, such as property marketing and professional cleaning fees.
How is a break clause enforced?
A break clause isn't mandatory in a tenancy agreement, which means you don't need to include one by law. It's an addition often added at the request of the landlord or tenant as a negotiated condition of the tenancy offer. If the tenant asks for a break clause, the landlord isn't obligated to include one, though if it's still a matter of negotiating
How the break clause is enforced regarding terms of lengths and notice periods depends on the wording in the AST. However, once both the tenant and landlord have signed the agreement, it becomes a binding contract, and the break clause is a legal stipulation.
How much notice do I have to give to activate a break clause?
The notice period of a break clause is two months for the landlord (as this is the minimum legally required notice period under Section 21) and usually the same for tenants depending on what was negotiated. If a tenancy is periodic, under statutory law the tenant is only required to provide one month's notice to end the tenancy.
For example, a landlord activating a break clause 8 months into the agreement would need to wait until the 10th month before the tenant moved out of the property.
Summary: breaking it down
Break clauses have become common practice in most tenancy agreements, as they give the landlord and tenant some flexibility in a contract that entails significant financial and legal obligations on each party for the duration of a tenancy. However, break clauses aren't mandatory, and it's ultimately down to a matter of negotiation between landlord and tenant when agreeing to terms for a tenancy.
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