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Monday, June 8, 2020
A lease is a contractual agreement between a Tenant and a Landlord and will generally last for a fixed period of time, commonly known as the term of the lease. There are a number of reasons that a Tenant may wish to leave the premises before the end of the term. Maybe the premises are no longer suitable. Maybe they are in financial difficulties and can no longer afford it. Maybe alternative premises have been found.
There is a common misconception by Tenants occupying commercial premises that the premises can be handed back at any stage throughout the tenancy, whenever they decide they no longer want to occupy them. Unfortunately, this view is incorrect. This article explores Tenants’ rights into what can potentially be the complex task of terminating their commercial lease early.
Exercising a break clause
A review of the lease and locating a break clause should always be the first port of call. A break clause is a clause in the lease which allows a Tenant to end a lease early, usually by serving a notice, generally at set times during the term. The lease will set out the specific requirements that must be followed, so ensure these the clause is specifically adhered to or risk the Landlord claiming the break is invalid.
Negotiating an early exit
If there is no break clause within the lease, I would next recommend approaching the landlord to see of they are open to negotiations for an early exit. This is known as surrendering the lease.
Depending on the circumstances, Landlords may be open to allowing you to leave early on the basis that certain circumstances are met. Usually, this involves a payment of a percentage of your liabilities for the remaining term of the lease. For a valid surrender, the Tenant must offer a clear, unequivocal, surrender to the Landlord and the Landlord must accept the surrender. If the Landlord does not accept the surrender, then it will be deemed invalid and you will still be liable under the terms of the lease.
The Landlord’s acceptance can be written or can be presumed by way of their conduct (such as acceptance of the keys or re-letting the premises to another Tenant). It is always strongly recommended to have the Landlords acceptance recorded in a Deed of Surrender to avoid any ambiguity – and potentially costly litigation – as to whether the Landlord did in fact accept the Tenants offer of surrender.
Assignment of the Lease
If there is no break clause, and the Landlord is not interested in accepting an offer of surrendering the lease, you may be able to assign it to a third party. This would involve locating a suitable Tenant yourself, which meets the requirements of the Landlord. Generally, the Landlord is also required to confirm their consent to the Assignment.
You may also be asked by the Landlord to provide a personal guarantee for the new Tenant. As such, assigning the lease may allow you to vacate and move on to other premises, however liabilities may remain.
Sub-letting
Check the terms of the lease to see if there is a clause that allows you to sub-let your premises. This can be beneficial in that incoming rental payments from the sub-tenant will cover your own obligations.
The terms of any sub-lease generally mirror the Tenants’, however the Tenant usually takes on greater responsibility in managing the premises and are likely to be the first point-of-call to answer any queries or concerns of the sub-tenant. Again, ordinarily, the Landlord’s consent is usually required to sub-let the premises.
What is clear from this article is that exiting a commercial lease early is potentially complex and costly. Therefore, before attempting to exit your commercial lease early, please ensure you obtain specific legal advice as to your circumstances.
If you are a Tenant and you are currently considering your options in regards to your commercial lease, if you need legal advice before making a decision, please don’t hesitate to contact Tom Cumming via thomascumming@samuelphillips.co.uk
Written by Thomas Cumming, Senior Associate and Head of Litigation and Employment
Thomas acts for businesses, entrepreneurs and charities ranging from multinationals to SMEs. He provides strategic and pragmatic advice in relation to broad span of commercial disputes with particular experience in contract and shareholder disputes, professional negligence actions and contentious property.
