Break clauses in buy to let tenancy agreements
In most cases, an assured shorthold tenancy agreement can only end during the contractual period if both the landlord and tenant agree to surrender it.
Ending it without the consent of the other party is a breach of contract. If the tenant wants to leave early, the landlord is entitled to the full term’s rent. If the landlord wants the tenant to leave, the tenant is entitled to stay until the term runs out.
One option to make tenancy more flexible for both parties is to include a ‘break clause’. A break clause allows either party to terminate the agreement after a set amount of time, with a set notice period.
Break clauses appear in tenancy agreements that are longer than six months. Most AST agreements are at least six months long, and landlords do not have a guaranteed right to possession during the first six months of a tenancy.
Example wording for a six-month tenancy break clause
Here is a simple example of a six-month break clause. This would appear in the section of the tenancy agreement dealing with the termination of a tenancy.
Break clause. This Tenancy may be ended by either party giving two months’ signed written notice, but not before the completion of the first six months.
Since the Housing Act 1996, there has been no minimum term for an assured shorthold tenancy. But as a court cannot grant a no-fault eviction within the first six months, most fixed terms are at least this length.
Keep the wording of the break clause fair
Break clauses must be balanced and grant neither party a disproportionate advantage. An example of an unfair break clause might be:
The tenant agrees that the landlord has the right to terminate the tenancy at any time with two months’ written notice.
This clause neither acknowledges the six-month minimum period nor allows the tenant to terminate the tenancy early. Thus, a court would be likely to deem it unenforceable.
If you are in any doubt about the wording of a rental contract, enlist the help of a solicitor.
Tenancy break clauses must also be unambiguous
As well as balanced, break clauses must be clear.
Clauses like this can often be ambiguous, even if they don’t seem it at first. For instance, a break clause may state that an agreement can be “terminated after the first six months”. But does this refer to the date of service, or the date of expiry?
This distinction can make or break a possession claim.
The number of people privately renting in the UK is rising. Older tenants and tenants with families are becoming more common, and these groups tend to seek longer rental contracts with more security.
Longer-term tenancies can also be advantageous to landlords, who benefit from consistent income and fewer voids. This helps with planning buy-to-let mortgage borrowing.
As a result, longer tenancy agreements are becoming more widespread. Break clauses give landlords the opportunity to sign longer-term tenancies with new tenants, while still having the recourse of no-fault eviction if they need it. And tenants benefit from both increased security of tenure and the flexibility that private renting offers.
This information should not be interpreted as financial advice. Buy to let mortgage rates are subject to change. Speak to our advisors for a mortgage illustration. Seek tax advice from a professional.