Ways to exit a commercial lease
In these uncertain times, not to mention the continuing impact of working from home, businesses may be looking to reduce property overheads.
Should a decision be made to reduce/end existing lease commitments, the following are the options potentially available to a commercial tenant:
Expiration of term
If there is not much time left to run on your contractual term then you can simply allow the term to expire. If your commercial lease however, is protected by the Landlord and Tenant Act 1954, it is essential that you have fully vacated the premises before the end of the contractual term as otherwise, pending service of appropriate notices under the 1954 Act, your liability will continue pursuant to the “held over” lease.
Tenant’s option to break
If a break right is available allowing the tenant to determine the lease at an earlier date than expiry of the term, this will be subject to notice requirements and compliance with various conditions. It is essential that these procedures are followed and conditions satisfied, in order to ensure that the break right is validly exercised and you are not left liable under the commercial lease for the remainder of the term.
Assignment or underletting
It is likely your commercial lease will allow assignment or subletting with landlord’s consent, not to be unreasonably withheld. Assignment means the assignee will become the new tenant and take over all the lease obligations, albeit you may be required to enter into an authorised guarantee agreement whereby you guarantee to the landlord that your immediate assignee will comply with the tenant’s covenants in the lease.
In a falling market, it may be difficult to find an assignee who will take the premises at the passing rent, leaving underletting a more viable option whereby you remain the tenant but you sublet the premises to a third party who then occupies the premises, potentially at a lower rent than you are paying the landlord. As mentioned above, landlord’s consent will be required before you can enter into an arrangement of this nature.
Surrender of the lease
This will be entirely at the landlord’s discretion to entertain but you could approach your landlord and endeavour to negotiate terms for the surrender of the commercial lease, whereby you are ideally released from all ongoing liability, including any past breaches such as dilapidations, in return for payment of an appropriate surrender premium.
Our commercial property team regularly deals with the nature of transactions mentioned above. We can advise on the options available to you through to the negotiation and completion of the relevant documentation. If you are a landlord or tenant and need commercial legal advice, then please contact me directly by calling 01752 203500 or emailing david.stone@GAsolicitors.com.