Early Lease Termination Commercial Leases
The coronavirus pandemic has had a profound effect on all businesses, leaving commercial tenants questioning the future of their business and many tenants now considering the real likelihood of having to down size their business premises or having to consider a further contingency plan in the event their business has to shut for good. The questions of ‘what do I do about my Lease’ and ‘how do I avoid being liable under my Lease’ are a couple of the key questions currently being asked. Kimberley Fox, a Solicitor in the property department, discusses the potential options for tenants who may wish to, or who may be forced to ‘step away’ from their current Lease.
Terminating a Lease
The method by which a Lease comes to an end is usually agreed at the outset during the negotiation of the Lease terms. The most recognisable way is by simply stipulating the length of the Lease, however sometimes it may not be commercially viable to see the Lease through until the end of the contractual term.
A few other ways of terminating a Lease or being released from the Lease obligations include:
exercising a Break clause;
sub-letting the premises or assigning the Lease; or
negotiating a Surrender of the Lease.
Exercising a Break clause
An early termination clause may have already been agreed and included in the Lease, commonly known as a ‘Break’ clause. Depending on how this is drafted, this clause can allow either party to provide a Notice to the other, confirming that they wish to terminate the Lease on a specified date (“Break Date”). There are usually strict conditions that must be adhered to such as, serving the Notice not less than 12 months before the proposed Break Date, delivering up the premises with vacant possession and ensuring that there are no subsisting breaches of the Lease such as any rent arrears for example.
Subletting and Assignment
The Lease may provide you with permission to either sub-let the whole of the premises or to sell the Lease to another tenant, with the landlord’s consent.
Once again there are often a number of conditions that must be satisfied before you are permitted to sub-let the premises or sell the Lease. The landlord can refuse to allow you to sell the Lease to a new tenant for example, who is not of sufficient financial standing and can also require you to guarantee the performance of the new tenant’s covenants under the Lease. It is very important therefore that you check through the conditions thoroughly.
A landlord and tenant can agree to bring a Lease to an end on terms agreed between them. Such terms can and often address, the release of each party from their obligations under the Lease, the payment of any rent arrears, loss of rent compensation, insurance premiums and, or service charges to name but a few.
If there are any repairs required to the premises, the landlord can also request that you cover the associated costs of any such repair as well as their legal costs for drawing up the necessary documentation.
Commercial tenants should carefully consider what might be the most appropriate approach in their circumstances. Continuing an amicable relationship with the Landlord can prove beneficial to any negotiations, so it is best to maintain open communications throughout any discussion.
If you have any queries or would like to discuss how our Property team may be able to assist you and any Lease queries you may have, then please give our team a call.