How To End A Commercial Lease – Information For Tenants
Whether your business is expanding and needs to move to larger premises, or you’re looking to reduce costs, there are often options available to tenants wondering how to end a commercial lease or deal with it in other ways.
The starting point is always to review the terms of your lease, as this will set out what you are entitled to do. There are a number of ways that a commercial lease can be ended, but refreshing yourself with the terms of your lease will help you understand which option is relevant to you.
We frequently receive questions from tenants wondering how to end a commercial lease, and have broken down the answers to these below to help you understand what your next steps might be if you are in this position.
Q: Our premises no longer meet the needs of our business – can we just walk away from our commercial lease?
Unfortunately not. A commercial property lease is a legally binding agreement, and simply walking away could leave you open to serious consequences, including the landlord seeking to bring legal proceedings against you.
Q: What is a break clause – do I have one in my commercial lease?
Break clauses are one of the most common ways to end a commercial lease. Break clauses allow tenants or landlords to end their lease early, on a specific date, or after a set period of time. However, break clauses will often stipulate various conditions which need to be satisfied on or before the break date, such as giving a minimum period of notice, the payment of rents due, handing the property back with vacant possession and any other conditions negotiated at the start of the lease.
Failure to comply with the conditions within a break clause can lead to the break clause not being exercised correctly and the lease continuing.
Q: Another business is interested in my property – can I transfer the lease to them?
Commercial property leases will often contain provisions allowing a tenant to transfer the lease to a third party – this is called an assignment. However, you will likely need the permission of the landlord to do this, as well as needing to comply with various conditions set out in the assignment provisions, such as ensuring that the payment of rent is up to date and there are no breaches of the lease.
The lease will also often set out various other conditions that the landlord can impose, including insisting on a guarantor for the assignee and/or the assignee providing a rent deposit to the landlord and also a requirement that you guarantee the performance of the assignee (this is called an authorised guarantee agreement).
It is important to note that assigning the lease does not bring the lease to an end and, as mentioned above, you can remain liable for the performance of the assignee once the lease has been assigned.
Q: I’ve had to reduce the size of my business operations – can I sublet my commercial property?
A bit like assigning a lease to a third party, it is often possible to sublet the whole or part of your commercial property.
If you are deciding how to end a commercial lease, subletting can be a useful way to reduce your costs, but again, the lease will set out various conditions which must be complied with in order to be able to sublet the whole or part of the premises, such as obtaining the landlord’s consent to the subletting.
When subletting, you will remain liable to the landlord under the terms of your lease even when you may not be in occupation of the property. Therefore, it is important to ensure that the subtenant is complying with the terms of the sublease and does not do anything which may put you in breach of your lease to the landlord.
Q: I’m not able to assign or sublet – can I approach the landlord to negotiate an earlier end to my commercial property lease?
Negotiating to leave a commercial property lease early is called a surrender. If both the landlord and tenant agree, it is sometimes possible to end a commercial lease earlier than originally agreed. However, the landlord is not obliged to agree to a surrender of the lease and can potentially insist on payment of a surrender premium in order to allow the surrender.
Q: My lease is due to end soon – what do I need to do?
If you’re approaching the end of your commercial property lease, it is important that you understand your responsibilities and obligations before returning the property to the landlord. Most commercial leases will contain provisions around the condition in which the property needs to be returned to the landlord, as well as other provisions such as the removal of fixtures and fittings and reinstatement of alterations.
Commercial property leases are often complex documents. It’s important that expert legal advice is sought when negotiating a commercial lease to ensure that the lease both meets your current business needs and also gives you flexibility for the future.
At GA Solicitors in Plymouth, our commercial property team is experienced in dealing with commercial property leases and can advise you on your next steps if you are looking to end a lease early. Our expert commercial property solicitors can talk you through your options and next steps to ensure that you achieve a favourable outcome.
For more information on ending a commercial lease, please email me directly by emailing alasdair.hall@gasolicitors.com or calling 01752 203500.
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