A commercial lease is not always easy to walk away from. We take a look at the options if you want to end your lease.
A lease is generally drafted to give both landlord and tenant some security for the future. If you are seeking to end the agreement, you will need to comply with its terms to ensure you will not be liable for a breach of contract.
For a tenant who wishes to end a commercial lease on a property early, there are four main options:
- Implement a break clause
- Assignment
- Sublet
- Surrender
Landlords can end a lease early if the tenant has breached its terms, for example, by failing to pay rent. The tenant may challenge this, so it is advisable to take legal advice to ensure that the correct procedure is followed and that you have a sound legal basis for forfeiting the lease.
In some limited circumstances, the landlord may also be able to serve notice on the tenant requiring them to leave before the end of the term of the lease.
Break clause
Your lease may contain a break clause that allows both landlord and tenant to end the lease after a specified period of time. If there is a break clause, then you must make sure that you follow the notice requirements exactly.
Surrender
If the lease does not contain a break clause, your landlord may be prepared to agree to end the commercial lease early. This would generally involve making a payment by way of compensation for being released from your obligations under the lease. If you ask us to represent you, we will negotiate with your landlord or their legal advisers to secure the best possible deal. We will also ensure that you were released from any ongoing liabilities in respect of the lease.
Assignment
Your lease may permit you to find a new tenant to whom you can assign the lease. The landlord will need to approve the new tenant and there will usually be other conditions attached. You are likely to have to sign an authorised guarantee agreement. This means that your liabilities under the lease will continue and you could be required to step in if the tenant breaches the terms of the lease, for example, by failing to pay the rent.
Subletting
If you cannot assign or transfer the lease, then you may be able to find a tenant to sublet the property from you. You will still be liable to the landlord for all of your obligations under the lease, but you could leave the premises and install a new tenant, who would pay you rent. The length of your tenant’s lease with you could be substantially shorter than your lease with the head landlord.
When a landlord wants to end a commercial lease early
A landlord has some of the same options as a tenant for ending a lease, including negotiating and paying for the tenant to leave and exercising a break clause.
They also have the option to forfeit the lease if the tenant has breached its conditions, for example, by not paying rent. For information about landlord and tenant disputes, see our article Common causes of dispute between landlord and tenant.
Otherwise, a landlord can serve notice on a tenant requiring them to leave in the following circumstances:
- If they intend to develop the property or to occupy the property themselves;
- Where the tenant leases only part of the property and the landlord could achieve a higher rent by leasing the whole property.
Again, it is essential to follow the correct process in serving notice, including providing evidence in support, and taking legal advice is recommended to ensure that the tenant cannot claim breach of contract.
When a commercial lease expires
A commercial tenant will have security of tenure, i.e. the right to renew the lease at the end of the term, unless this has been specifically excluded in the lease.
Where the right to renew exists, the parties will need to agree upon the terms. The tenant is entitled to terms at least as beneficial as those in the existing lease.
If the tenant does not wish to exercise their right to renew they should give at least three months’ notice of their intention to leave. This notice should be in a set form, known as a s.72(2) Notice to End a Commercial Lease.
If the lease excludes security of tenure, then the tenant will need to try and renegotiate a new lease with the landlord well before the end of the term.
Contact us
At Witan Solicitors, we have a team of property dispute solicitors in Birmingham, London and Northampton, who represent landlords and tenants across a range of sectors using a variety of commercial dispute tactics. We can advise you on the terms of a lease and negotiate robustly on your behalf to ensure that you have the best deal possible.
If you are considering entering into a commercial lease or you need advice on how to end a commercial lease early once you’ve already signed it, email us at info@witansolicitors.co.uk or fill in our contact form and we will be happy to help you.
