A break fee, also known as a termination fee, is a sum paid by a party withdrawing from a business agreement to reimburse the other party/parties for expenses incurred due to their involvement. This fee is common in mergers, joint ventures, lease agreements, and publishing contracts.
Also known as a termination fee, a break fee is a sum paid in the event that one of the parties to a proposed business agreement decides to withdraw from the project before it is complete. Fees of this type are often part of the structure for mergers, joint ventures between companies, and in other situations where one or both parties incur expenses as a result of their involvement. The purpose of the break fee is to reimburse the partner who wanted to move forward with the project for expenses incurred due to his involvement in the project.
One of the most common examples of a surcharge being applied is when a merger or acquisition does not go as planned. For whatever reason, one of the parties decides not to go through with the trade agreement, effectively creating a situation that is known as a merger. This leaves the other partner or partners to absorb the costs incurred in trying to complete the merger process. The partner who chooses to withdraw from the agreement pays an agreed amount of money to the other partners as a means of partially offsetting their investment of time and money in the merger process.
Fees of this type are not limited to situations involving large corporations that have signed an agreement to become a single unit. Publishers routinely include the break fee in any contract they extend to a writer. Typically referred to in this case as a murder fee, the idea is that if the publisher initially accepts the writer’s produced work and later chooses not to publish the work, the writer will receive partial compensation for their work in the form of fee. In many cases, the writer retains the rights to the work produced and may try to sell the manuscript or text elsewhere.
It is not uncommon for a break fee to be included in lease agreements. This request commits the tenant to pay the remaining amount due on the lease to end the lease. At the same time, if the landlord wants to terminate the lease early, and for reasons not addressed in the agreement, the terms and conditions related to the fee may require the tenant to receive some form of compensation. As with other applications, the idea is to compensate the expenses incurred by the party that was willing to fulfill the terms of the contract, but is unable to do so due to the actions of the other party.
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