Exiting A Commercial Lease Early: A Guide For Tenants
With a hybrid working approach now the norm in many sectors post-COVID, businesses are finding themselves needing to downsize their physical office space or relinquish their premises entirely. While this kind of move can significantly reduce business costs, it will likely involve exiting a commercial lease early, which can pose several challenges. If you’re not sure where you stand as a tenant, we’ve put together a helpful guide on how to exit a commercial lease early, whatever your circumstances are.
When considering exiting a commercial lease early, the first thing tenants need to look out for is a break clause. A break clause includes a date agreed between the tenant and the landlord, specifying the earliest time you can exit the lease without facing a penalty. This clause doesn’t always just benefit the tenant, if they would like to leave early, but can sometimes be mutual in its application and also benefit the landlord. If you have this clause in place, you will see a line in your lease agreement which states the date the lease can be ended.
Once you have decided that you are going to exit the commercial lease early and have checked your break clause, you will need to provide the sufficient written notice required in the lease and ensure you have complied with any other stated break pre-conditions before you can determine the lease and stop paying the rent to your landlord.
If you’ve checked your lease and cannot find a break clause, there is no need to panic; you may have other options, depending on what your landlord is willing to agree to. Exiting a commercial lease early without a break clause can typically be achieved by:
- Surrendering the lease
- Assignment of the lease – Passing the lease on to somebody else
- Subletting the premises
Surrendering A Commercial Lease
If you are wondering how to exit a commercial lease early without a break clause, surrendering the lease entirely will likely be your first consideration. This involves giving up your right to the lease and therefore terminating the contract early. For this to be successful, the landlord must agree to the lease surrender. Do note that many landlords will refuse such a request unless they have reasons doing so could be beneficial, such as if they have new tenants lined up immediately.
When surrendering the lease, it’s worth checking in with a qualified solicitor to ensure that you don’t have any remaining liabilities to your landlord. If you do, clearing these before trying to negotiate the lease surrender may increase your landlord’s willingness to accept. A solicitor will also be able to help you write up the declaration of both parties agreeing to the commercial lease being ended.
For those deciding not to create documentation of your surrendered lease, it’s important to remember that the act of handing back the keys, alongside your part of the lease documentation and the landlord accepting this without objections, reflects the acceptance of the surrender of the lease. If not documented however, the tenant will not be automatically released from any existing liability, in particular the cost of putting the premises back into repair, or the reinstatement of tenant’s alterations.
Commercial Lease Assignment
For those who have no means to continue using the property and want to be spared of any liability on the original lease, you may look to exit a commercial lease early by passing the lease on to somebody else. This is called commercial lease assignment and your ability to do this successfully is very much dependent on the details contained in the lease.
If your lease includes the ability to assign the commercial lease to somebody else, the first thing to do is find someone who would be looking to take over the lease. As they will be taking over your current lease, there is minimal room for negotiation on the terms included in the lease, so it’s essential that they are completely happy with these before assigning them to it.
Once a willing assignee has been found, this is the stage where you will require the help of a solicitor to deal with the lease assignment and the obtaining of the landlord’s consent to the same. Be aware that as a condition of such consent, it is likely the landlord will require the outgoing tenant to stand as guarantor to the assignee/new tenant, known as an authorised guarantee agreement.
Subletting A Commercial Lease
Depending on the details of your lease, another way you can exit a commercial lease early is by subletting. In this circumstance, you will still be solely responsible for paying the rent to the landlord, no matter whether the businesses subletting the property pay you or not.
This option is hugely beneficial for those who are wondering how to exit a commercial lease early and are unable to afford the payments on their own and don’t need the use of the whole property anymore. Another business tenant can use the space whilst paying the rent directly to you rather than the landlord of the building.
As mentioned above, landlord’s consent will be necessary to any such sublease arrangement and to ensure compliance with the assignment or subletting provisions in your lease, contact our specialist commercial property team today who will be able to guide you through the process.
GA Solicitors’ commercial property team has years of experience assisting tenants in their negotiations with landlords and can help you explore the different methods of exiting a commercial lease early. Call us on 01752 203500 or email enquiries@GAsolicitors.com for a clear and transparent discussion about your options.
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