Whether you are thinking of downsizing or struggling to manage rising costs, the time may come when your commercial property lease no longer works for you.
We know that businesses can sometimes feel obliged to follow through with their lease until the end, but there are often various means of ending a lease, should you need to.
Deciding on how to end your lease early will depend entirely on the lease terms in your contract and what is right for you.
Our Head of Commercial Property, Elena Nicolaou, explains your options.
Why might you consider ending your lease?
You may be facing financial pressure and your rent and overheads might be becoming harder to justify.
It could be that your business is growing and the space can no longer support your operations.
Alternatively, you may be downsizing or restructuring your business, which may mean your current premises are too large.
It is easy to assume that breaking or surrendering your lease is not possible or that the consequences will be too costly to consider.
However, many leases do offer more flexibility than businesses realise.
What are your options to end a commercial lease?
Here are a number of common options for ending a commercial property lease:
Break clauses
Some leases will include a break clause and this gives you the right to end the lease early.
If you want to break your contract, you must provide written notice before you intend to leave.
You must also comply with any other requirements set out in the break clause, such as ensuring rent is fully paid or complying with other conditions attached to such clause.
Where the right to break is a one-off break linked to a specified date, should you decide to pursue this route, you must be careful not to miss the deadline for serving the required notice.
Assigning your lease
An assignment allows you to transfer your lease to another body/ party. If the lease permits assignment, this often requires your landlord’s consent, which may be subject to conditions.
You may be asked to guarantee the new tenant’s performance. This may include some level of risk after you leave the property, such as being liable for certain breaches of the lease.
Negotiating a surrender
A surrender is when you and your landlord agree to bring the lease to an end early and this is usually documented in a deed of surrender.
This can offer a clean break, but it does sometimes involve negotiations with your landlord.
Landlords are not obliged to accept a surrender and they may expect a financial payment or other terms in return.
Subletting the property
If a full exit is not immediately possible for you, then subletting can provide some breathing space.
Subletting allows you to remain the tenant, while another body/ party occupies the property.
This can ease some of the financial pressure when you consider your next step, but you may still be responsible for the lease obligations.
Subletting will only be permitted if the lease allows for this and if it does, it often requires your landlord’s consent, which may be subject to conditions.
In terms of a subletting, you will still be responsible to the Landlord for payment of the rent under the headlease and performing your obligations under the head lease.
If your headlease is mortgaged, you must ensure that you comply with any terms and obtain any lender’s consent before you proceed.
What are the risks of getting it wrong?
Trying to exit your lease without fully understanding your legal position can sometimes create more problems than it solves.
You could be putting your business at risk of ongoing costs or disputes if you have invalid break notices or unclear agreements.
However, if they exist, there could still be a liability for dilapidations and considering those early on and assessing the financial costs would be advisable.
This is why getting early advice can help ensure you serve your notice correctly.
Our professional team has supported many companies looking to end their lease early.
We can help manage the negotiations with your landlord and ensure you leave on terms that are fair.
If you want further advice on ending your lease, contact our commercial property team today.
