04 September 2013
I’m a commercial tenant, get me out of here!
What can you do if you're a commercial tenant and have found a great opportunity to move to “perfect” premises, but you need to get out of your existing lease? Alison Taylor, senior associate lawyer in the commercial property practice, looks at the options.
Termination under a break clause
If there is a break clause you may be able to terminate your lease at a specified point. Check the notice you have to give and when this needs to be given by.
Check carefully that you have complied with any pre-conditions, such as paying rent and other sums under the lease and keeping the premises in repair, because failure to do so may mean the lease has not been validly terminated.
Always seek legal advice well in advance so you can ensure that the right to terminate is validly exercised. Failure to get it correct may mean that the lease (including the liability to pay rent and other sums under the lease) continues for the full term of the lease or until the next termination date.
Termination or surrender by negotiation
If you can negotiate termination, you may be able to agree terms to surrender your lease early to your landlord. Of course, the landlord is under no obligation to agree and may want a substantial amount of money, including a lump sum payment of professional fees, future rating liability and loss of rent, payment for repairs and redecoration.
Finding a new tenant to take over your lease - someone to “assign” it to - is usually a good way of disposing of the liability. Generally the landlord's consent is required and it is likely that there will be restrictions about who you can assign it to. Leases for a shorter term often prohibit assignment altogether. Even if you can assign the lease, you may still have legal liabilities for payments owed by future tenants or for other liabilities under the lease, or have to guarantee some or all of the incoming tenant's liabilities under the lease.
A lawyer can advise on continuing liability after the assignment, prepare the necessary documents for you and negotiate these with your assignee and your landlord. Sub-letting: Rental from sub-letting could cover part or all of your rent and leave you free to move. However, sub-letting won't get you out of the lease – you retain all your liabilities as a tenant for the full term and have the additional burden of managing your sub-tenant.
There are likely to be restrictions in your lease regarding sub-letting, for example, many leases do not allow you to sub-let part of the property and generally, the landlord's consent will be required.
Points to remember
When negotiating, put yourself in the landlord’s shoes. Is there a strong demand for premises or have rents gone up compared to what you are paying? The more potential new tenants available, the more likely the landlord is to say yes to a surrender of your lease. In these circumstances it may also be easier for you to find a sub-tenant or an assignee. Conversely, if rents are much lower than you are paying or there is no demand for the type of premises you occupy, your landlord is less likely to let you go (unless there are plans to redevelop), and it may also be difficult to find an assignee or sub-tenant.
In a difficult market, tenants can also find that landlords are keen to find reasons not to let them off the hook under a break clause, for example by disputing whether the notice has been served correctly or whether the pre-conditions have been satisfied.
You need judgment, experience and a good knowledge of the local market, so use both your own – and your legal adviser's – negotiating skills to ensure the next right move.