Also known as failure costs agreement. A payment from the buyer or seller to the other (or possibly payable by the target company itself) if the deal does not proceed to signing or closing. Common situations that trigger a break fee payment are breach of an exclusivity agreement or failure to obtain shareholder or regulatory approval.

Note that for transactions to which the Takeover Code applies, break fee agreements, or inducement fee agreements as they are also known, between a target and bidder are generally prohibited, subject to limited exceptions (Rule 21.2, Takeover Code).

For more information, see Practice note, Break fees and other deal protection measures: What are break fees?