Once you have committed to a certain length of lease you cannot simply change your mind and hand the keys back to your landlord. If you have committed to renting a commercial premises for 5 years then even if you decide to vacate the premises you are still legally “on the hook” for the rent payments and all other tenant covenants contained within the lease.
Nevertheless, there are ways in which you can end your commercial lease early if you want or need to. Perhaps your business has outgrown your current premises quicker than you thought it would. Perhaps the opposite has occurred and your business simply hasn’t expanded as you thought it was. Whatever the reason here are some options to consider for ending your lease early:
- Can you exercise a break clause?
Your commercial lease may contain a break clause – this is effectively a contractual right for you to end the lease early. Whether or not your lease contains such a clause will depend entirely upon whether or not you negotiated one in to your lease before you signed it. Even if you did, then you will likely have a fixed break date with a minimum notice period. If the fixed break date has passed, or you do not have enough time to give the minimum notice period, then you will not be able to exercise it.
The same is true if the break clause contains conditions which you must satisfy before exercising the break and which you cannot meet. For example, most break clauses require you to give vacant possession. Leave some rubbish or a forgotten partition behind and you may find that the lease has not in fact ended when you thought it had.
- Talk to your Landlord about a surrender
Whatever the length of lease that you have, you and your landlord can agree to end it early, so it is always worth asking your landlord if this is possible. While a surrender can be done without a formal deed, just handing the keys back to the landlord is unlikely to be effective and even if you can prove that your landlord has agreed, such a surrender may not have released you from your liability for past breaches of the commercial lease terms. So a deed of surrender is usually used bringing all your obligations to a legal end. Your landlord, though, will be losing a tenant and a guaranteed level of rent for a guaranteed period, so your landlord is unlikely to agree to a surrender for free. He may ask for a premium equal to 6, 9 or 12 months’ rent, perhaps even more, whilst he sources a replacement tenant and to cover his costs.
- Can you find a new tenant for the property yourself and assign the lease?
This effectively means you transferring your lease to a replacement tenant. Getting a Landlord to agree to an assignment can be very hard to do. At the absolute least you will have to enter into an authorised guarantee agreement which requires you to guarantee the new tenant’s obligations after the lease is assigned if the new tenant fails to comply with them. Your landlord will likely want lots of information about the new tenant, and will want all of his costs covered too.
- Can you sublet all or part of the Property to another tenant?
You may prefer to sublet the property. This effectively means that you keep your lease with your landlord, but you also grant another lease directly from you to another party. Not all commercial leases allow subleases and even fewer permit subleases of part. If allowed, you will again need the landlord’s permission to enter into a sublease and there may be restrictions on what you can agree to. For example most subleases will have to be granted without security of tenure and the subtenant will be required to covenant direct with the head landlord to obey all the covenants in the head lease so far as they affect the property that is being sublet.
- Can you enter into an informal sharing arrangement?
Some commercial leases will permit you to share your space with another person so long as no formal lease is created. The problem is this is easier to say than to achieve. If your lease does not permit such sharing, then you will be in breach of the terms of your lease if you do share.
- If all else fails – talk to your landlord!
If none of the above options work out then try talking to your landlord about alternatives. He may be willing to reduce the rent, shorten the term or give you termination rights you did not have before.
The key to successfully assigning, subletting or ending your commercial lease is planning. Know in advance what your needs are and how you intend to meet them. Then communicate with all those involved or who can help you achieve your goal. Remember also, that if you do end your lease early you will need to consider your end of lease obligations including repair and reinstatement.
But above all when you sign up to your lease, make sure you know what it says and that it contains the provisions you may need in the future. Do not assume that your needs will not change!
For further information please visit our website page: subletting or assigning your lease.
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