Can I end a Commercial Lease early?

Tenants often sign leases without taking any legal advice and then discover that they have either no break clause in the lease or find they have passed the break date. Landlords are often not that sympathetic and insist the rents are continued to be paid on time.

A commercial lease is in effect a type of contract between the landlord and the tenant. It is therefore binding on both parties, and is enforceable in court. Once a lease is signed, the terms cannot be varied unless both parties agree to the change. It cannot be stressed how important it is to obtain legal advice before signing a lease.

If your business is slowing down and you are struggling to meet rental payments, then you may want to consider the following options:

  • Negotiate with the landlord and see if you can agree an early surrender of the lease. This will usually involve a payment as incentive (or compensation) for the landlord to end the lease early and to look for another tenant.
  • Sub-let. Check the Lease to see if you are able to sub-let. This will involve you finding a tenant and signing a sub-lease, under which the tenant will pay you rent. Your lease with the landlord will continue and you will continue to pay the landlord rent. If you are lucky, you may be able to sub-let the property at a higher rent than you pay yourself, thereby making a profit for yourself. Even if the lease does not allow sub-letting, your landlord may agree to it.Â
  • Assign the Lease. This will involve you finding another tenant and assigning your lease to the new tenant, via a ‘deed of assignment’ document. Most leases contain this right for the tenant to assign the lease. However, it is almost invariably subject to obtaining the landlord’s consent first, in the form of a ‘licence to assign’, and you signing a guarantee agreement whereby you guarantee the new tenant’s rental payments. You will need to pay the landlord’s legal fees for doing this.
  • Vacate the premises and notify the landlord that you cannot pay any further rent. If the landlord accepts the return of the keys to the premises, this can constitute a surrender of the lease. The landlord may refuse to take back the keys and demands the payment of rent, failing which the landlord can file a claim at the court against you for the outstanding and future rent payable under the lease.

If you would like assistance with negotiating with your landlord or tenant for any of the above then please contact a member of our Commercial Property Department.

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