Exiting commercial leases early

Not all of the options listed below will end your lease and some may only partly pass your liability on to third parties. However there four main methods:

• The exercise of a break option;
• Reaching an agreement with your landlord to surrender your lease early;
• The assignment (transfer) of your lease to a third party; or
• The subletting of your lease to a third party.

There are advantages and disadvantages to each of these. In order to confirm which (if any) options might be available to you, it is essential to seek advice from a solicitor.

Exercising a break option

Not all leases will contain a break option. However, if you do have this, the first thing you will need to check and double check is the date of your break option and how much notice you need to provide in advance (usually 6 months’ notice in writing). Deadlines are strict and if you miss your deadline for service of the notice, you are likely to lose your option.

The second thing you will need to check is the method of service. The lease will often provide for notices to be sent in a particular manner, for example by first class post or an alternative method. Again, if you use the wrong method or don’t allow enough time for the notice to arrive, you are likely to miss your deadline.

The third thing to check will be whether there are any conditions attached to the break. For example, do you need to make any payments beyond the break date? Do you need to give vacant possession? Again, conditions must be strictly complied with. If your lease requires you to serve the notice on pink paper but you serve it on white paper, the notice is likely to be invalid.

There are often a number of conditions which will need to be satisfied and these are not always immediately clear. It’s therefore important to seek legal advice well in advance of seeking to exercise any break option.

Early surrender

Although your landlord is usually under no obligation to do so, it is sometimes possible to negotiate an early surrender of your lease by agreement. The landlord may require payment of a premium in exchange for your early release. Equally, if the landlord is keen to take back the premises, they may be willing to offer a payment (or reverse premium) themselves.

The surrender of the lease will usually be documented by way of a deed of surrender or transfer deed. In either case, it is important that you seek legal advice on such documentation to ensure that you are released from all past, existing and future obligations from completion. If this is not the case, you may hand back your keys but later find that you are still required to pay future sums under the terms of the lease.

Assignment or subletting

Commercial leases will often include an option for the tenant to transfer or sublease the whole of the property to a third party. This will usually require the prior consent of the landlord and the payment of the landlord’s costs for granting such a consent. The landlord will often require references and/or additional security for the new tenant.

It is important to bear in mind that, if you sublet your property, you will remain the tenant and will continue to be directly responsible to your landlord for your rents under the lease. Your subtenant will instead pay you their rents directly and you will be responsible for enforcing the terms of the underlease.

Similarly, when assigning your lease, it is also very common for the landlord to require you to guarantee the obligations of the new tenant as a condition for granting consent to the transfer. Therefore, if the new tenant fails to pay, you will usually be required to step back in and pay the rents due and meet any other covenants under the lease to include repair and maintenance.

For more information Sophie’s video is available here: How can I get out of the lease now that I no longer want these business premises | Mullis & Peake (mplaw.co.uk)