Jurisdiction(s):
United Kingdom

Related legal acts

Key definition

Break fee definition

What does Break fee mean? A break fee (also called an inducement or termination fee) is a pre-agreed payment due if a proposed transaction terminates on specified triggers. In practice it allocates deal risk, helps cover due diligence, advisory and opportunity costs, and can deter conduct that would unreasonably cause the deal to fail. Typical triggers include a change of recommendation, acceptance of a superior offer, material breach, failure to obtain shareholder approval, or failure of conditions within a party’s control. A buyer‑payable “reverse break fee” is common where failure stems from merger control, financing or other bidder risks. The term is a descriptive expression used...

Break fees in UK share purchase transactions: purpose, triggers and legal constraints—ultra vires, directors' duties, financial assistance and penalty rule; public takeovers—Takeover Code prohibition

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Practice notes

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The nature and purpose of Break fees

Break fees typically exist to reimburse a party’s legal and professional outlay incurred through due diligence and negotiations when a deal ends. They can also act as a deterrent to behaviour that might unreasonably derail the process, encouraging both sides to keep talking, and discouraging steps that could prevent the transaction from moving forward at all or otherwise cause it to stall. The parties usually enter into a Break fee agreement early in the sale process, commonly before the buyer begins its due diligence. Such provisions (also referred to as inducement, termination or broken deal Fees) may appear in a stand-alone agreement or be set out within heads of terms.

Types of break fees

The most prevalent form of break fee arises where the target undertakes to pay the bidder a sum if a specified event happens and the transaction then fails to complete (for instance, where the seller accepts a superior third-party offer or any necessary shareholder consent is not secured)...

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Web page updated on 21/05/2026

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