What options are available if you are a commercial tenant looking to dispose of your lease?
As a tenant you may want to dispose of a commercial lease earlier rather than wait for the term to expire. For example, you may have outgrown the space and need to move somewhere bigger or you may be in financial difficulty and cannot keep up with the rent.
If you are fortunate enough to be in the position where your current lease is ending soon or a break date is coming up so that you have the contractual right to end the lease early, then you may not need to do anything other than to serve the break notice within the required time period.
However, if it is not possible to end the lease in this way then you really only have three options for disposing of your current lease and the first two are only applicable if the terms of the lease permit you to do so.
- Grant an Underlease To A New Tenant
Underletting the property means that your lease with the landlord stays in place. However, you grant a new underlease to a new tenant so that they pay the rent to you, which you in turn pay to the landlord. An underlease can be granted for part of a property (rarely), the whole of a property and for any period of time up to the remainder of the term left on your existing lease. But remember, you are still liable under your existing lease so if your undertenant fails to pay rent or keep the property in repair then it will still be your contractual obligation to rectify this.
You must review the terms of your lease to determine if underletting is permitted or prohibited and if so, of whole or part. If underletting is permitted then you need to determine the conditions of underletting as quite often the underlease will need to mirror the terms of the lease in existence and be approved by the Landlord before it can be completed.
- Assign the Lease to A New Tenant
An assignment of a lease is when you transfer the term left under the lease to a new tenant which then removes you from the direct landlord-tenant relationship as the new tenant will deal directly with the landlord.
You must first review the terms of your lease to determine if assignment is permitted or prohibited. If it is permitted then you need to determine the conditions of the assignment. As an assignment means the landlord will create a new landlord-tenant relationship with someone else, the landlord will be more involved in an assignment process. Your lease may also set out a number of conditions to assignment which might include references and guarantors for the new tenant. You may also be required to enter into an Authorised Guarantee Agreement with the Landlord whereby you personally guarantee the new tenant’s obligations.
- Negotiate with Your Landlord
Alternatively, you may be able to agree a surrender of the existing lease with your landlord. However, as the landlord is under no obligation to agree to any early surrender there is never any guarantee that this can be achieved.
If the lease is nearing the end of its term you may be able to agree a ‘compensatory payment’ for an early surrender. However, as you are contractually committed to pay the rent until the end of the lease term , your Landlord may require a sum equivalent to that amount in order to release you.
Whether or not a surrender can be agreed will depend upon your relationship with your landlord, the market, the location of the premises and many other factors.
How can Askews help you?
Askews Legal LLP has a dedicated team of Property specialists who can assist with any commercial property issues. For further advice or to obtain a quote, please contact Kuljeet Sandhu, Head of Commercial Property at Askews Legal LLP.
Do you want to work with one of our solicitors in Coventry? You need to visit the Askews Legal website today. If you would like to get in contact with a member of our team, give us a call on 02476 231000. Alternatively, fill in the contact form on our website and someone will get back to you as soon as possible.
Askews Legal LLP – Solicitors Coventry.
