Subletting or Assigning a Lease

Are you a commercial tenant looking to dispose of your current lease?

Are you a commercial tenant looking to dispose of your current lease?

Sometimes you, as tenant, will want to dispose of a commercial lease earlier rather than wait for the term to expire. For example, you may have outgrown the space and need to move somewhere bigger, or you may be in financial difficulty and cannot keep up with the rent.

If you are fortunate enough to be in the position where your current lease is ending soon anyway, or a break date is coming up so that you have the contractual right to end the lease early, then you may not need to do anything other than serve the break notice (if applicable), move out of the premises and wait for the term to end. See Ending the Lease for more information on this.

However, if it is not possible to end the lease in this way then you really only have 3 options for disposing of your current lease, and the first 2 are only permitted if the terms of the lease say so!

1. Grant a Sublease to a New Tenant

Subleasing the property means that your lease with the landlord stays in place. However, you grant a new sublease to a new tenant so that they pay the rent to you, which you in turn pay to the landlord. A sublease can be granted for part of a property, a whole of a property and for any period of time up to the remainder of the term left on your existing lease. But remember, you will still be “on the hook” under your existing lease so if your subtenant fails to pay rent or keep the property in repair then it will still be your contractual obligation to do those same things.

Your starting point with a sublease will be the terms of your lease – is sub-letting permitted or prohibited? If subletting is permitted what are the conditions of subletting? Quite often the sublease will need to mirror the terms of the lease in existence, and be approved by the Landlord before it can be completed. The landlord will also expect his costs to be covered for giving permission to the subletting.

For more information on Subletting or Assigning a Lease...

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2. Assign the Lease to a New Tenant

An assignment of a lease is where you transfer the term left in the lease to a new tenant, which then removes you from the direct landlord-tenant relationship. The new tenant will deal directly with your landlord.

As with sub-letting, your starting point will need to be the terms of your lease. Does your lease permit or prohibit assignment? If it is permitted, what are the terms/conditions of assignment? Quite often, because a lease assignment is more permanent than a sublet, and because an assignment means the landlord will create a new landlord-tenant relationship with someone else, the landlord will be more involved in an assignment process. Your lease may also set out a number of conditions to assignment which might include references and guarantors for the new tenant. You may also be required to enter into an Authorised Guarantee Agreement with the Landlord whereby you personally guarantee the new tenant’s obligations. As with subletting your landlord will expect his costs in the matter to be covered by you.

3. Negotiation with your Landlord

Alternatively, you may be able to agree a surrender of the existing lease with your landlord. However, as the landlord is under no obligation to agree to any early surrender there is never any guarantee that this can be achieved.

If the lease is nearing the end of its term anyway you may be able to agree a ‘compensatory payment’ for an early surrender. However, you are contractually committed to pay the rent until the end of the lease term so your Landlord may require a sum equivalent to that amount in order to release you.

Whether or not a surrender can be agreed will depend upon your relationship with your landlord, the market, the location of the premises and many other factors.

Our dedicated team of solicitors, based in Witney, Oxfordshire, would be happy to answer your questions.

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