Many commercial leases include a clause known as a “break clause.” This may also be called a termination clause or an early termination clause. It’s a way for the tenant or the landlord to get out of the lease early.
There are already some reasons why a tenant can break their lease without penalty. Military service is a common example. However, the majority of commercial tenants are bound by the lease until it expires.
A break clause gives these commercial tenants a bit more flexibility and control over their situation. They know that they can get out of the lease early if pre-specified events occur.
Issues with the location
One example of how this could work is if the business owner isn’t sure that the location is going to be ideal for their company. They have a budget, and they know how much money the business needs to bring in every year in order for it to work.
But if that business owner looks at the receipts after the first year and they just aren’t earning enough, they may be justified in breaking the lease early and searching for another location.
That said, this does need to be spelled out in advance. The early termination clause may be the only reason that the business owner signs the lease, because they know it gives them a bit of extra financial protection. Both parties need to know that early termination is an option, and they need to be aware of any potential fees or financial ramifications that may go along with it. Every contract is unique.
As you can imagine, this can sometimes create a very complicated situation. Those involved must know what legal steps to take to find solutions.