Specialist Commercial Property Lawyers
Terminating a commercial lease does not have to be a legal drama. As you will see from our tips, the most important thing is to actually understand what’s in your lease – because that is what governs termination.
And if you consider the following top tips and seek legal advice, then ending your business lease should be relatively pain free.
Need a specialist commercial property lawyer to help you get out of a commercial lease? Call us now on FREEPHONE 0800 1404544 for FREE Initial Advice on the phone.
Commercial Lease Termination – Your Four Options
Say you’ve taken on a long commercial lease but for one reason or another you want to get out of it – maybe you’re downsizing, or better still have outgrown your current space or perhaps want to buy your own business property. What are your options?
Our commercial property lawyers suggest you first consider one of the four alternative options;
1. Assignment – you may find under your current lease that you’re able to go for an assignment – i.e. effectively you sell on the lease to new tenants. Bear in mind that in doing so, any permitted assignment almost always needs the consent of the current landlord. Depending of course on your lease, the landlord may be allowed to insist on conditions on any assignment – possibly including requiring you, as outgoing tenants, to act as a guarantor for the new tenant.
2. Deed of surrender – you might be able to negotiate with your current landlord an early termination
3. Subletting – again, depending of course on the terms of your current lease, you may find yourself permitted to sublet the whole premises – or at least part of them. Bear in mind that any subletting may need the consent of your current landlord. This may not get you out of the lease entirely – but hopefully the rental income from subletting will cover part, if not all, of your current rental obligations.
4. Exercising a break clause – the easiest thing, of course, if your current lease contained such a clause, is simple termination under that break clause. It’s amazing, however, how many commercial property leases don’t contain a break clause – even in very long leases. Even the best businesses can’t foretell the future – so it’s always best to push as hard as you can to insert break clauses into commercial leases – another good reason to make sure that when you do enter into any lease, you check the terms out first with a specialist commercial property lawyer.
If you are experiencing problems getting out of your current lease, or you’re thinking of entering into a new lease and want to make sure that you are not putting yourself at unreasonable risk, get in touch with our commercial property solicitors – who will be more than happy to give you FREE initial legal advice over the phone.
Commercial Lease Termination – seven things to watch out for
1 – Identify the correct party
Before serving a ‘notice to terminate’ on your landlord, ensure that it is coming from the correct party. For example, although you may be the managing director of a company, if the notice appears to come from you personally and does not come from the company, that error could render the notice invalid.
2 – check the correct notice period
When calculating your notice period in relation to your contract end date, be aware of exactly what your lease provision is saying. For example, if your lease contains terms such as ‘including’ or ‘commencing on’ this means that your lease will expire on the day before the date in the relevant year or month. If the agreement uses the term ‘from’ it will have started the day after the ‘from’ date.
3 – when terminating, make sure you serve any notice correctly
Check the lease for any provisions relating to notice, such as the manner in which, it should be served and within what period of time. If the lease requests that you must serve the termination in writing with 6 months notice, then an email 4 months prior to a proposed termination date will not be legally sufficient. If the lease is silent on this point (i.e. it doesn’t deal with the issue at all), then s.27(1) Landlord & Tenant Act (1927) provides that you can leave the notice at the landlord’s last known place of business. If you do this, then service of the notice will be deemed at the time when it was left at this address.
Note however this only applies if hand delivered. If you post the notice then it will be deemed to be received when the landlord physically picks it up.
4 – check who is the competent landlord
With a tenant termination, the notice does not have to be served upon the ‘competent’ landlord. A competent landlord is the original head landlord, for example if a subletting has occurred. A tenant is able to serve a commercial lease termination notice on the immediate landlord.
5 – double-check what rent you need to pay
If there is no break clause in the lease and you want to vacate the premises before the contract end date, then your rent paying obligations will continue until that date. If you are not planning on leaving the premises before the contract end date, then you should give notice (subject to any lease provisions) 3 months prior to that date.
6 – make sure you don’t end up in breach of the lease
Ensure that all your lease provisions have been fulfilled prior to serving the termination notice. For example make sure that all rent payments are up to date and repair covenants have been complied with. If you have breached any of the terms of the lease then your notice may be rendered invalid.
7 – avoid a big bill for dilapidations
On termination, the landlord will inspect the property for damages or failure to keep the building adequately maintained. It is always a good idea to keep written and of the condition of the property when you took out the lease. You should consider how much of your deposit money may be taken if any dilapidations are found. Taking photographic evidence of the property in case you have to argue the extent of damage with the landlord is always a good move.
The question of repair is often the biggest problem with ending a commercial lease – especially if you are subject to a fully repairing lease. Try to make sure that when you vacate the building, it has been properly repaired and maintained. The chances are that you will be able to deal with any dilapidation issues at a much cheaper price than your landlord. Failing to do so could land you with an absolutely huge bill from your landlord or managing agents – who, unlike you, will have no particular incentive to keep the repair bill down.
If you have any queries about commercial lease termination, then always seek legal advice from a specialist commercial property solicitor before serving a notice on the landlord. If you fail to correctly terminate your lease, you may find that you inadvertently end up with an expensive and unwanted lease extension.