An early exit from your commercial lease

Due to the fast-paced nature of the commercial world, businesses are always having to adapt. This can mean that a business may need to upgrade its premises or move some of its business online and downgrade. This can be an issue if you have a commercial lease that has not yet contractually ended. However, there are still ways that the commercial tenant can be free from its obligation of occupying the premise themselves.

A break clause

Some commercial leases have a break clause. This clause will usually stipulate that either the Landlord or the Tenant can end the lease early after a certain period. The break clause will usually have certain stipulations that need to be complied with e.g. a one month notice provided in writing.

Assigning the lease  

Assigning the lease is when the commercial tenant sells (transfers) the lease to another buyer with the consent of the Landlord. This can only be done if the commercial tenant has been granted this right under the lease. If this right has been granted, it usually stipulates that the commercial tenant must seek the consent of the commercial landlord. The commercial landlord will want to ensure that the new buyer has the finances and a good rental record (if applicable).

The commercial landlord is likely to want the commercial tenant to sign an Authorised Guarantee Agreement. This document imposes liabilities under the lease on the commercial tenant if the new buyer breaches their obligations. Nevertheless, if the commercial landlord does not agree to assigning the lease, then it cannot be done. Thus, the commercial tenant will have to see if they can come to another agreement with the commercial landlord.

Negotiating with the commercial landlord

Dependant on the negotiating powers of the commercial tenant and the commercial landlord, an alternative agreement could be reached allowing the commercial tenant to exist the lease early. However, this is likely to be an expensive alternative for the commercial tenant, as the commercial landlord will want to secure its interests and seek the outstanding monies owed under the lease (or as much of it as possible). Furthermore, the commercial landlord will expect the commercial tenant to pay their legal fees as well as their own for any documents that need to be drafted.

Please feel free to contact our Commercial Property department with any questions regarding existing a commercial lease.

 

 

 

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