Leases can be fairly onerous upon tenants; often coming with significant responsibilities for upkeep and repair. Furthermore, leases will usually require a commitment of three or more years; leaving little ‘wiggle room’ should circumstances change in your business. Therefore, when a premise is no longer suitable for a tenant, for whatever reason, ending the lease is not a straightforward process.
Here, we look at some of the routes available if you’re looking to exit a commercial property lease.
Terminate the lease under a break clause.
Many leases will include a break clause, giving the option to end the lease before the full term at a pre-determined time. In the majority of cases, this will be at around the halfway point of the full lease term – eg. 2.5 years into a 5-year lease. In order to exercise the break, you will need to do so formally by way of written notice to the landlord within plenty of time, in accordance with the notice period stated in the lease. In order to have the right to terminate the lease at the breakpoint, it is also essential to have complied with the other terms within your lease, such as upkeep, maintenance and repair responsibilities.
Negotiate termination with the landlord.
Depending on the circumstances why you need to leave the premises, you may be able to negotiate an early exit with the landlord by way of agreement. Landlords will usually not be keen to do this for obvious reasons. However, an agreement may be reached where an early exit fee is paid by the tenant. Where tenants are looking to take on larger premises, it would be in the interests of the landlord to agree to the termination of the existing property, so it may be that you can negotiate an exit without fees.
Assign the lease.
One way of exiting a lease early is to find a new tenant to take over – or assign – the lease to. Despite the potential benefits of this type of exit, there are also drawbacks, for example, the landlord will usually not be willing to pay for any legal fees, so these would have to be covered by the outgoing or new tenant, or split between the two. Other things to consider are any restrictions on assignment – either in terms of the type of business that can lease the property, or the timeframe; some leases will restrict assignment in the latter part of the lease term.
It is worth noting that the legalities associated with assigning a lease will usually be fairly complex. For example, the outgoing tenant will usually still be liable for all future payments until the end of the lease, or else have to guarantee some or all of the new tenant’s payments.
Sublet the premises or part of the premises.
Another option, similar to the above, is to sublet the premises to another business, or businesses. It will almost always be necessary to obtain the written consent of the landlord to do this. Whilst this could be a good option for freeing up the funds to take up a lease on alternate premises, the majority of the obligations will remain with the tenant that is named on the lease. This includes continuing to meet the rent payments and also keeping up with all maintenance and repair. When the lease does come to the end of the term, any works required to bring the property back up to standard, or a dilapidations claim by the landlord, will be payable by the original tenant.
Regardless of the route you opt to take, terminating the lease of a commercial property can be a complex matter and seeking legal advice is always advisable.
The Commercial Property team at O’Donnell Solicitors frequently advises both landlords and tenants in relation to exiting leases prior to the end of their term.
For initial advice on any commercial property matter, please contact our commercial property solicitors James O’Donnell and Callum Dalloway on 01457 761 320 or by email at james@odonnellsolicitors.co.uk or callum@odonnellsolicitors.co.uk.
