With a commercial lease, a break clause can be used to allow one party to end the lease sooner than it would have naturally ended on its own. This is often referred to as an early termination clause.
Without such a clause in place, both the landlord and the tenant are generally bound by the terms of the lease until it expires. If someone signs a three-year commercial lease, they are obligated to continue making payments for that entire duration, unless they negotiate an early exit. But if there is a break clause in place, it can give them some options to get out of the lease early, releasing them from this legal obligation.
Why would a tenant want to break a lease early?
There are many reasons why a tenant may want to get out of a lease early.
For instance, the clause could be written to state that the commercial business has to meet certain income or revenue thresholds. The tenant may not be sure that this is an ideal location for their business, and the lease is only going to be affordable if they are bringing in a consistent amount of revenue. If they fall short and it proves to be a poor location, they may want to end the lease early so that they can relocate the business and have success elsewhere.
On the other side of the equation, a landlord could also be interested in using an early termination agreement. The value of the property may go up, especially if it is in a developing area. The landlord may want to be able to get out of the lease or renegotiate the terms based on rising property values.
These are just two different examples to keep in mind, and every situation is unique. But it helps to show why it is so important to understand the legal details of a lease, including any clauses that may or may not be used. It can help to work with an experienced attorney while drafting and negotiating these documents.