Is a break clause better than a lease option?

Most tenants when committing to a lease, seek an option(s) to ensure long term stability or to have the ability to sell their business at a later date. Changes proposed this year in the Retail Leases Amendment Act will see a cooling off period after an option is taken up and provide the ability to a tenant to walk away from a lease if the rent assessed is not to their liking. The practice that has stood for decades is one where parties who do not agree on a rent for the commencement of a renewed lease can have the rent determined by an independent valuer acting as an expert. This will be turned on its head and will be problematic for both parties as follows:

 1.  Investors may be reluctant to give options as they become problematic.

  2. Tenants will lose the security that comes with additional options as landlords become                    resistant to offering them.

  3. The potential exists that following a rental determination which can occur months after the 
      lease renewal date involving considerable expense, the tenant can still walk away from the            lease.

  4. Uncertainty is therefore created.

An alternative may be a long lease with a break clause.

A lease could run for 10 years for example with a break clause at year 5 with the tenant having a window say 6 – 9 months prior to the 5 year break point to give notice if they wish to move out. There may or may not be a market review at that point. There is no requirement to notify the tenant of the break point once the lease commences, both parties have certainty and the lease continues if the tenant does not provide notice within the required time frame.

Will this catch on or will it be thwarted by section 94 of the Retail Leases Act 2003 The Act prevails over retail premises leases, agreements etc? No doubt the property industry will be looking at this issue in greater detail over the course of this year.