18 March 2015
How to End a Business Lease Before it Expires
As a business tenant, there are many reasons why you might wish to terminate a commercial lease. So we’ve come up with a short guide on how to end a business lease before it’s due to expire.
So you may be Scenario 1:
I am struggling to pay the rent and my business has slowed down. The premises are too big and I am worried that I can’t pay the next quarter’s rent.
Or Scenario 2:
My business is booming and my company needs extra space to expand. The lease is due to expire in three years’ time but we will need extra space before then.
Is there anything we can do?
As a business tenant, your lease grants you an exclusive right to occupy a property for a fixed period of time. The options available to a tenant to bring its lease to an end during the term of the lease are quite different from those at the end of the lease term. Options available during the term of the lease
The first place to look is your lease. Prudent tenants may have negotiated a break clause which gives an opportunity to terminate the lease on a specific date provided you comply with certain conditions. Warning: – exercising a break clause can be tricky as there are often several things to get right. The courts construe break notices very strictly and many tenants have failed over what seems to be a minor issue. If you have a break clause in your lease, early preparation is key. You should seek advice on its requirements at the earliest opportunity, ideally at least 12 months before the break date.
If the lease does not contain a break option, it can only be terminated early if the landlord is in agreement with this. This is known as a surrender.
You could approach the landlord and simply offer to hand the lease back to them. However, it is not quite as easy as returning the keys as your landlord is not obliged to accept your surrender. It depends on the circumstances. The landlord may have another (better) tenant lined up. Bear in mind that you may have to entice them to take the premises back off their hands. Payment of a cash lump sum (a surrender premium) is an attractive proposition to any landlord.
This is where you transfer your lease to a third party, assuming you can find somebody who is willing to take if off your hands. Even if you do find a willing third party, your landlord will have to approve them before they can take your place and, in all likelihood, you will be expected to act as their guarantor. It can be a good way to minimise outgoings but you do not wash your hands completely of your lease. Legal advice is essential before entering into any agreement with your landlord.
This is where you find a third party to occupy all or part of your premises and you become their landlord. You will still remain on the hook under your own lease but you effectively shift most of the responsibilities onto somebody else. It is usually a requirement that the landlord will have to approve the incoming tenant. Once consent has been obtained and, the documentation has been drawn up, you can start to collect some rent.
Planning the great escape
We have suggested some options available to a tenant wishing to bring its lease to an end early. Please bear in mind that there are other considerations including the state of repair of the property. Generally, a tenant is required to carry out the works necessary to put the premises back into the standard envisaged by the lease. This can have important consequences.
Whatever you decide to do, it is critical that you document your arrangements clearly. Legal advice is always a good idea so if you want some help and support contact Slater and Gordon Lawyers UK. The expert team of Commercial Property Solicitors offer high levels of technical expertise and service on a wide range of commercial property issues. Contact us on freephone 0800 916 9083 or contact us online and we will call you.
Slater and Gordon Lawyers have more than 1,450 staff and 18 offices in London, Manchester, Liverpool, Birmingham, Sheffield, Milton Keynes, Bristol, Derby, Merseyside, Cambridge, Edinburgh, Cardiff, Halifax, Newcastle, Wakefield and meeting rooms in Bramhall, Cheshire and in Hull, Yorkshire.