DEFINITION of 'Break Fee'

1. A fee paid by a target company to bidders (during an acquisition) if the pending deal is terminated.

2. A fee paid by one party of a contract to another in order to terminate or cancel legal obligations.

BREAKING DOWN 'Break Fee'

1. Supposedly used to recoup costs and fees associated with due diligence during an acquisition. These break fees are seemingly used more and more for the purpose of restoring lost reputations arising from deals falling through.

2. Common in lease agreements, these break fees are penalties charged against parties not wishing to fulfill their portion of a contract.

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