This Practice Note covers by and upon which party a break notice must be served, the method of service (ie permissive or mandatory contractual provisions, statutory regimes for service of notices and deeming provisions under section 196 of the Law of Property Act 1925 (LPA 1925), section 23 of the Landlord and Tenant Act 1927 (LTA 1927), section 7 of the Interpretation Act 1978 (IA 1978), and common law rules). It also looks at the interaction between break notices and statutory security of tenure under the Housing Act 1988 and the Landlord and Tenant Act 1954 (LTA 1954). For more information in respect of when a break may be exercised, case law in respect of compliance with break notice requirements, in particular the reasonable recipient test under Mannai Investment v Eagle Star Life Assurance, and what happens when a mistake in a break notice is spotted, whether or not a break notice can be withdrawn or waived, and compliance with conditions precedent (pre-conditions), see Practice Note: Break clauses and notices—exercising breaks and conditions precedent. Who

ARCHIVED: This precedent has been archived and is not maintained. Definitions (General) Competent Authority • any authority having jurisdiction in relation to the Property, its occupation or use; Restricted Period • any period [exceeding [number] [continuous] weeks] during the Term in which a Pandemic Restriction applies; Pandemic Restriction • any Legislation, or any requirement of, or guidance published by, a Competent Authority which: (a) arises out of [COVID-19 or the occurrence of any other OR any] national or local pandemic disease; and (b) prohibits, prevents or restricts the Tenant from [fully] [trading

Break fees are generally designed to compensate a party’s legal and professional costs which it may have incurred in due diligence and negotiations at the time the transaction terminates. They may also encourage the parties to remain at the negotiating table rather than take action that may unreasonably cause the transaction not to proceed.

A fee paid by an offeree to an offeror if the offer does not proceed in certain circumstances, to compensate the offeror for its fees and expenses in connection with the making of the offer. Before September 2011, the Code placed safeguards on the payment of break fees, including that the amount be de minimis (normally no more than 1% of the value of the offeree). Rule 21.2 now prohibits the offeree and its concert parties from entering into any offer-related arrangement (broadly defined as 'any agreement, arrangement or commitment in connection with an offer') with the offeror or its concert parties, including a break fee (unless the Panel consents to the arrangement, because there is a 'white knight' situation or a formal sale process has been initiated by the offeree).

These are generally designed to compensate one party’s legal and professional costs which it may have incurred in due diligence and negotiations at the time the share purchase/asset purchase transaction terminates. The most common type of break fee is where the target agrees to pay a fee to the bidder if a specified event occurs, which results in the transaction not completing (eg if the seller accepts a higher offer from a third party or any required shareholder approval is not obtained). Break fee provisions (also known as inducement, termination or broken deal fees) may be contained in a separate agreement (entered into early on in the sale transaction, usually before the buyer commences due diligence) or may be included in heads of terms. In the UK, break fees are outlawed by the City Code on Takeovers and Mergers in the case of UK public targets and the Listing Rules in the UK impose limits on such fees in the case of premium listed issuers.

This Practice Note considers the prohibition on break fees and other deal protection measures (or ‘offer-related arrangements’) under Rule 21.2 of the City Code on Takeovers and Mergers (Code) and the application of Rule 21.2 to schemes of arrangement as established by Appendix 7. Exemptions from the general prohibition are considered, as are circumstances in which dispensations may be granted by the Takeover Panel (Panel), such as those in relation to competing offers or a formal sale process. Background—Takeover Panel consultations Since 11 September 2011 the Code has generally prohibited break fees and other deal protection measures in public takeovers, subject to some specific exceptions. The prohibition was introduced in response to the Panel’s concerns that the increasing use of inducement fee arrangements and other deal protection measures was discouraging potential competing offerors and leaving offeree boards with limited room to facilitate or recommend a competing offer. Rule 21.2—general prohibition on offer-related arrangements Rule 21.2 states that, except with the consent of the Panel, neither the offeree nor any person acting in

The nature and purpose of break fees Break fees are generally designed to compensate one party’s legal and professional costs which it may have incurred in due diligence and negotiations at the time the transaction terminates. They may also encourage the parties to remain at the negotiating table rather than take action that may unreasonably cause the transaction not to proceed. A break fee agreement will be signed by the parties early on in the sale transaction, usually before the buyer commences its due diligence. Break fee provisions (also known as inducement, termination or broken deal fees) may be contained in a separate agreement or may be included in heads of terms. Types of break fees The most common type of break fee is where the target agrees to pay a fee to the bidder if a specified event occurs, which results in the transaction not completing (for example, if the seller accepts a higher offer from a third party or any required shareholder approval is not obtained). A substantial shareholder of the target may also agree to

A lease for a term of years may contain an option for the parties or one of them to terminate the lease before the expiration of the term. This is known as a break option or clause. Many tenants will refuse to sign-up to a lease unless they are given the right to walk away early. Landlords often agree reluctantly to such a break option (often coinciding with a rent review date) in order to achieve the letting, and they hope the tenant will not exercise the option or that it will fall down on a technicality regarding timing or in respect of conditions that are attached to the exercise of the option. Who may exercise the break? If the lease is silent as to which party may exercise the break option, it may be exercised by either party, as the lease is a bilateral contract. In practice, most leases will provide whether the break is exercisable by the landlord or the tenant, or if the right is mutual to both

Break clauses A break clause is a term in a lease which permits the landlord or the tenant to terminate a lease early. Break clauses are considered in detail in the Practice Note: Break options in commercial leases in Scotland which covers: • who may exercise the break • when may the break clause be exercised • pre-conditions to exercising a break clause, and • the effect on sub-leases For examples of drafting in break clauses, see Precedents: Style clause—landlord break option to terminate lease—Scotland, Style clause—tenant break option to terminate lease—Scotland and Style clauses—mutual break option to terminate lease—Scotland and for guidance on exercising a break option, see: Exercising break clauses—Scotland—checklist. Break notices Break options are exercised by the service of a break notice. The requirements associated with the break notice including the form, the date for and mode of service and the identity of parties on whom service is to be affected are often detailed in the break clause. However, they may also be

What is a break clause? A lease for a term of years may contain an option for the parties or one of them to terminate the lease before the expiration of the term. This is known as a break option or clause. A break clause allows either (or both) the landlord and/or tenant to bring the lease to an end early on a particular date or on the occurrence of a particular event. Break clauses give the benefitting party flexibility, eg to respond to changing market conditions. Break options are exercised by the service of a break notice. The requirements associated with the break notice, including the form, date and terms for service, mode of service and the identity of parties on whom service is to be effected are often detailed in the break clause. However, they may also be contained in a general clause in the lease, or both. See further: Contents of clause: Stair's Laws of Scotland (Stair Memorial Encyclopaedia). Who may exercise the break clause? If the lease is silent

General overview of asset sales Whether a buyer is purchasing assets from a solvent seller, or a seller which is distressed or in a formal insolvency proceeding, will give rise to a variety of different legal and practical considerations for the parties involved. The Insolvency Act 1986 (IA 1986) regulates various formal insolvency processes for both corporate entities and individuals. The principal corporate insolvency procedures in England and Wales are administration and liquidation: • if the company is in liquidation (whether compulsory or voluntary) and the appointed liquidator is not able to sell the business as a going concern, the liquidator will sell the assets of the insolvent company (as a job lot if possible, piecemeal if necessary) to maximise the funds available for distribution to creditors • when a company enters administration, the administrator takes over the control of the company's assets from the company's directors, with the objective of achieving one of the statutory purposes of administration (see Practice Note: Administration—an

The rate of inflation assumed by holders of index-linked gilts (UK government bonds) so that they can compare the return they get with the return they would get from conventional gilts.