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Ending a Tenancy with a Break Clause

by | Oct 19, 2022

Home $ What documents do I need to rent a flat in the UK? $ Ending a Tenancy with a Break Clause

Introduction

Tenancy agreements typically contain break clauses that allow either the tenant or the landlord to terminate the tenancy agreement during the term of the agreement itself.

For example, in a 12-month tenancy agreement that has a 6-month break clause within it, both the tenant and the landlord can end the tenancy agreement after a period of six months has passed from the start date of the same tenancy agreement.

Having a break clause in a tenancy agreement can give both tenants and landlords the flexibility to end their tenancy early, perhaps as a result of sudden changes in circumstances.

Nonetheless, the tenancy cannot be ended immediately. The landlord or tenant willing to use the break clause will still have to respect the notice period in order to give the counterpart the time to reorganize.

The purpose of this article is to explain what a break clause tenancy is, how it works, and what can happen if a landlord or tenant misuses their right to enforce a break clause.

What Does a Break Clause Mean in a Rental Agreement?

A break clause tenancy is a part of the AST (Assured shorthold tenancy agreement) that allows terminating the tenancy early. It’s a clause that states when and after how long a landlord/tenant can end the tenancy, as well as how much notice has to be given.

A 12-month break clause substantially is an agreement between a tenant and a landlord that allows the tenant to leave after the first year of his lease without the need to pay any penalty or remaining rent. If the landlord has agreed to this, they will include a break clause tenancy in the rental agreement.

According to the Landlord and tenant act 1954, the break clause tenancy is typically only offered if the tenant signs a one-year (or longer) lease. It depends on what the landlord wants and what they feel like giving up on their side of things.

tenant signing a tenancy agreement with break clause

What is a break clause?

A break clause tenancy is a provision in a lease agreement that allows the tenant to terminate the lease early. This lease option in the tenancy agreement may be used when the tenant wants to move to another location or simply reduce his/her rent payments.

Similarly, a landlord can also use a break clause tenancy if he needs the premises vacated before the end of the tenancy, this might happen if massive renovations are planned or if the landlord has to change the country for a long period due to personal reasons and realistically can’t manage the property anymore.

The tenant must give written notice of his intention to terminate the lease before he has actually vacated the premises. The landlord will then have an opportunity to re-rent it. However, if the tenant refuses to move out after a notice has been provided by the landlord, he can force the tenant out by filing an eviction lawsuit with his local court clerk’s office.

A break clause tenancy is often included in commercial leases, but it can also be found in residential rental agreements.

Break clause examples

A break clause tenancy may be included in a commercial lease, such as one for retail premises or warehouse space, or it may be included in a residential lease.

A break clause for commercial tenancies might be used when tenants face financial difficulties and their businesses are closing down. In a nutshell, if a tenant can’t pay rent or other bills, the landlord may want to terminate the lease so that the tenant will be forced out of the property and the landlord won’t lose any more payments.

There are two main types of tenancies that usually include a break clause:

Periodic tenancies

In this type of tenancy, the break clause is naturally included. Periodic tenancies allow the tenant to end the tenancy agreement whenever they like as they give proper notice period to the landlord. 

For example, if the lease states that it will run for 12 months and then automatically renew for another 12 months, the tenant could give notice after 3 months of the first year of tenancy and leave after the notice period has passed without incurring in any extra spent.

Fixed term tenancies

If the tenancy agreement states that the tenant can end the fixed term tenancy earlier than what the agreement originally intends, this means he/she has a ‘break clause’. The tenancy agreement will tell when the break clause can apply. For example, the break clause might say the tenant can end the tenancy 6 months after it starts if gives 1 month’s notice.

Tenant signing a rent contract

What is an Unfair break clause in a tenancy agreement?

There are many different types of tenancy agreements. The most common are assured shorthold tenancies, which are commonly used in the private rented sector.

The rules relating to these agreements are set out in the Housing Act 1988. The law says that any break clause tenancy must be reasonable and fair. This means that both parties should be able to rely on it, as well as have some control over when it can come into effect.

For example, it would not be reasonable for one party to have complete control over whether or not the break clause tenancy comes into effect by allowing them to end the agreement whenever they wish, this would be an unfair break clause as it would mean one party has complete control over whether or not they wanted to continue with the tenancy agreement.

Why would a tenant want a break clause in the contract?

Tenants have rights too, and one of them is the right to break a lease. 

The most common reason for tenants to want a break clause tenancy is if they are moving out of state or country. If the tenant has a job offer in another city or country and doesn’t want to risk losing it by having to wait too long, they may want to exercise their right to break the lease early.

Another common reason for tenants wanting to break their leases early is if they find themselves in an unsafe living situation. For example, if there was a fire, or a violent crime, in the building or any other type of concern.

This could cause tenants to fear for their lives and want out of the lease early. Before moving into a house or property, it is advisable to conduct a tenancy check-in.

Landlord asking tenant to sign tenancy agreement

Why would a landlord want a break clause?

The reason why a landlord wants a break clause is so they can get out of the lease if they need to.

  • The landlord is dealing with a tenant who is not paying rent
  • The tenants are causing problems with other tenants in the building
  • The landlord might want to sell the property and therefore has the need to end the lease earlier

Mutual break clause

The mutual break clause tenancy is a provision in the tenancy agreement that allows either party to terminate the agreement if certain conditions are met. 

The landlord gets protection against tenants who don’t pay rent or cause problems in their property, while tenants get the chance to change property/city/country if they have or need to.

For example:

  • If a tenant pays their rent late more than twice within twelve months, the landlord can give them one month’s notice and ask them to leave. As long as they’ve paid all their rent up until that point, this notice will be valid
  • If a landlord doesn’t carry out repairs within six months from when they were requested, then the tenant can give break notice to quit tenancy and leave with no further costs or penalties for either party
mutual break clause being signed

How a Landlord can activate the break clause?

A landlord can activate the break clause tenancy by giving notice to the tenant. 

  • The notice must be in writing and it must specify that the break clause tenancy will end on a certain date
  • The notice should also include details of any compensation that may be payable by either party if the tenancy ends early
  • The tenant must then vacate the property by the date specified in the notice period unless they have agreed with the landlord to an alternative date

How a tenant can activate the break clause?

If a tenant wants to exercise the break clause tenancy in their tenancy agreement, they can do so by giving their landlord notice.

  • The break clause notice must be in writing and should be signed by the tenant or their agent
  • It should also specify how long they wish to remain in the property before making the break clause effective

For example, if a tenant wishes to move out of a property at the end of May 2023, then, they would have to provide written notice by end of April (assuming a one-month notice period)

How is a break clause implemented?

A break clause tenancy will be implemented in the following manner:

  • If the tenant wishes to leave before the end of the fixed term, he/she must give written notice to the landlord according to the notice period included in the tenancy. Of course, the notice of break clause must be served before the expiry date of the original contract.
  • The tenant does not need to give a reason for leaving early; however, if he/she does so, it may help him/her later if there is a dispute about rent arrears or other matters.
  • If a tenant wants to leave during the fixed term and has not served notice, he/she would owe rent until a new tenant moves in or until they find somewhere else to sublet the property.

What should a break clause state?

The break clause tenancy should be worded in a way that is fair and reasonable to both parties. It should also clearly state what will happen if either party wishes to terminate the contract early.

A break clause tenancy should state:

  • The period of time that has to pass before one of the parties has the right to terminate the agreement
  • The grounds upon which they can terminate the agreement
  • The amount of compensation that should be paid by either party if this occurs
  • If there are any other requirements that must be met before they can activate the break clause

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6-month break clause

The most common break clause is the 6-month break clause. Both the landlord and tenant can break their lease without incurring any penalties if they are unhappy with it.

Some landlords will extend the break clause limit to 12 months or even longer.

The downside of the 6-month break clause is that if the landlord doesn’t agree to it and the tenant wants to leave early, he/she may face some form of penalty for doing so.

Is a 6-month break clause mandatory?

There is no legal obligation of including a break clause tenancy in a commercial or residential tenancy agreement.

A break clause tenancy must comply with the law if it is included in a lease.

Is a break clause effective?

A break clause is effective and beneficial if it is properly exercised and does not cause any damage to the landlord or tenant. The main disadvantage of a break clause is that a tenant may have to pay the landlord if he decides to leave before the lease expires.

The amount that the tenant will have to pay is usually proportional to how much time is left on the lease. For example, if a tenant leaves after six months, and there is a year left on the lease, he may have to pay two months’ rent (or more).

If the contract does contain a break clause, then there are steps that the tenant can take in order to avoid paying any amount of money at the end of the tenancy.

How does a 12-month break clause work?

A 12-month break clause tenancy works by allowing tenants who have signed a fixed-term tenancy agreement with a landlord or letting agent to leave after a minimum of 12 months and before their contract ends, without giving any reason.

The contract specifies how much time must pass between when notice is given and when it comes into effect, usually one or two months, which should be clear at the beginning.

Conclusion

Break clause tenancy is useful when renting out a property, which is why it is becoming more and more common in the UK.

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Tenancies including break clauses can be a little more complex than standard annual tenancies. Nonetheless, the break clause helps landlords and tenants prevent being over-committed to each other and leaves certain flexibility to the rent contract while protecting both parties in the event of any future disagreements.

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