A Lessee’s Perspective: Can I End My Commercial Property Lease Early?

We recognise that sometimes it is not viable to continue the lease for the duration of the fixed term. There may be extraneous factors, such as a recession which may have impacted upon the cash flow of the business, or the lease needs to be determined on the death of a lessee. There are various options to determine your lease which are contingent on the wording of your lease.

Break Clause:

It may be possible to end the lease early if there is a break clause present within the lease. This will permit the lease to come to an end on an agreed anniversary of the commencement of the term.

There are often certain conditions which are contained within the lease to invoke the break clause, such as a notice to be served in writing on the Landlord no less than 6 months’ prior to the break date.

Assignment:

A commercial lease assignment refers to the lessee selling the residual lease to a new lessee.

Factors to consider for the outgoing lessee:-

1. The onus is on the outgoing lessee to find a new lessee to enter the current lease for the duration of the fixed term;
2. The landlord is likely to require the new lessee to satisfy certain criteria, such as providing suitable references, before consent is provided to the assignment;
3. The landlord could be permitted to refuse the assignment of the lease on grounds such as failure to pay rent, or the lessee has no trade/business experience;
4. The lessee is likely to be required to pay the landlord’s solicitor fees for the assignment;
5. The outgoing lessee will be required to enter what is known as an Authorised Guarantee Agreement (AGA). An AGA is a guarantee from the outgoing lessee that the new lessee will fulfil their obligations imposed by the lease. Should the new lessee fall foul of the lease terms, the landlord is permitted to seek the outgoing lessee to indemnify the landlord by either paying any rent arrears or to take back the lease.

Subletting:

It is also possible to sublet the commercial lease to a new lessee.

Subletting the premises is similar to assigning the lease. The original lessee will always remain liable to the landlord under the terms of the sublet agreement. The new lessee will pay the original lessee, and the original lessee will still pay the landlord directly.

Subletting will require the landlord’s consent and usually the consent will come with conditions, such as the subletting lease should be on substantially similar terms as the head lease and the rent is no less than the rent agreed in the head lease.

Deed of Surrender:

If the landlord agrees respectively to end the lease early, it is possible to enter a Deed of Surrender. This is usual on the death of a lessee.

It is likely the landlord will require you to pay their solicitor’s professional fees for the drafting of the Deed of Surrender. The landlord may also require some form of remuneration to compensate them for terminating the lease early. This ultimately depends on what can be agreed between the landlord and the lessee.

Ancillary Advice:

Within this article, consideration has been made only to a handful of factors when disposing of your lease.

It may become apparent that within your lease, there is no option to assign the lease. It is important that you instruct a solicitor when taking a lease to ensure adequate provisions are contained within the lease should you ever decide to dispose of your lease early.

Can I simply stop paying my rent?

This is not an option. It is vital that you do not unilaterally elect to cease paying the agreed rent to your landlord.

Your landlord is likely to forfeit the lease, and seek further costs against you, and/or your guarantor, if applicable.

If you have any questions regarding anything covered in this article, please call us on 02476 231000 or email enquiries@askewslegal.co. Please note that this article is for information purposes only and does not constitute legal advice.