Break fee

In plain English

Negotiating a deal costs both sides time and money. A break fee shifts some of that cost onto the party that walks away, usually for reasons specified in the agreement, such as choosing a competing bidder or failing to obtain an approval that was in their gift.

In founder led agency transactions break fees are uncommon. They appear more often in larger or competitive processes, or where one party is taking an unusual risk by proceeding.

Why it matters

For sellers, a break fee can be a way of making a buyer commit before exclusivity is granted. For buyers, it protects the cost of due diligence if the seller changes course. In both cases the fee needs to be proportionate, or it becomes a reason not to proceed at all.

What to watch for

• Break fees are only as good as the drafting that defines when they apply.
• They are usually agreed in heads of terms and need legal advice.
• A reverse break fee, paid by the buyer, is the mirror image and protects the seller.

Transaction language and legal treatment depend on the agreement and the jurisdiction. Written by Motion Advisory Partners as general guidance, not legal advice.