9 December 2024
AMD’s Tom Halliday, Commercial Solicitor explains what to do if your tenant has requested an early exit from their commercial lease.
It is not uncommon for commercial tenants to ask to exit their leases early, either because their business has failed, they no longer need the premises, or they are looking to reduce overheads by off-loading underperforming locations. This article covers a few common requests from tenants to exit their lease.
1. Surrender
This is where the lease is ended by entering into a deed of surrender, terminating all past and future obligations under the lease. However, agreeing to a surrender is at the landlord’s discretion. The parties are not required to agree and the landlord will likely want some recompense for loss of rent, and professional costs for a new lease. There is also the issue of dilapidations to be considered for any existing repairs to enable re-letting of the premises.
2. Break clause
It is fairly commonplace for a break clause to be included in a lease. If the lease includes a break clause and it is exercised by the tenant, it would be advisable to speak to us at the earliest opportunity so we can ensure the break notice has been validly served. The rules relating to break clauses can be quite tricky and there are often conditions which must be complied with in order for the break notice to be effective. Early termination of the lease via a break clause gives rise to an early dilapidation claim, and therefore landlords will need to consider the condition of the premises and the repairing covenant in the lease.
3. Assignment
This is where the tenant transfers their lease to another person or company (the assignee). Most leases contains an alienation clause which requires the tenant to obtain the landlord’s consent before an assignment occurs. This is so the landlord can assess the financial viability of the assignee, and can stipulate reasonable conditions to the assignment. Often the landlord will require the outgoing tenant to enter into an authorised guarantee agreement, guaranteeing the obligations of the assignee under the lease; the outgoing tenant will remain prospectively liable until a new lease or further assignment occurs. The outgoing tenant and assignee will each have their own legal costs to pay and the landlord’s legal costs are often split between them too.
4. Underletting
Underletting may be a viable option to the tenant if permitted under the lease. Underletting will also need the consent of the landlord and there will be costs to pay for this. The tenant will remain liable to the landlord for payment of the rent under its lease, so, even if the undertenant were to default, they still have to pay the rent. If the tenant’s business is struggling, then a full surrender or lease assignment may be a more suitable option than underletting.
Conclusion
If you need advice on your lease, or on commercial property matters in general, then please contact Tom Halliday on 0117 973 3989 or tomhalliday@amdsolicitors.com who will be delighted to assist.
