When you sign a commercial lease agreement, you commit to an agreed period of occupation. This means that for the duration of the lease term, you commit to the lease obligations. However, circumstances can quickly change, and you may no longer be able to commit to your commercial lease. Therefore, you may need to end the lease earlier than the lease term. This article will explain your options as a commercial tenant where you can no longer commit to your commercial lease.
How Can a Commercial Tenant End a Lease Early?
If you find you can no longer commit to your commercial lease, you should take legal advice about your options. It is essential to understand your options and when you can exercise these to ensure you are no longer legally bound by the lease. Otherwise, you may still have to carry out the lease obligations. We explain some options below.
1. Lease Surrender
At the very least, you should tell your landlord. In an ideal world, they may allow you to surrender your lease. This is where you are both in mutual agreement that the lease ends.
A lease surrender can be express or implied. Express is where the surrender is a declaration in writing. This will contain:
- the surrender date;
- any fee you need to pay;
- any compensation you will owe your landlord;
- any repair cost liabilities; and
- what happens to any claims you or your landlord have.
On the other hand, an implied lease surrender is a surrender involving conduct such as giving your landlord their keys. However, it is only an implied surrender if the landlord accepts your behaviour. For this reason, it is best to seek an express lease surrender.
2. Break Clause
A break clause is a standard option to end your commercial lease. A break clause allows you or the commercial landlord to end the commercial lease before the lease term end date.
The two main types of a break clause in a commercial lease are a:
- fixed break clause, which specifies a date or dates you can end the lease; and
- rolling break course, which allows you to exercise this right after a specified date on the lease term.
When you exercise a break clause to terminate your lease, you must pay attention to the break clause provision. This will detail how to apply the break clause, such as:
- the notice period;
- the form of notice; and
- any conditions which the commercial tenant must meet.
This cheat sheet outlines what you should be aware of in your lease agreement.
Where it is problematic to continue with your commercial lease, you may find you can assign it to a third party. Your lease agreement will state if this is possible or not. Additionally, the lease agreement might specify that you must first:
- require your landlord’s permission to assign; or
- become a guarantor for the new tenant.
A further option that may be available to you where you can no longer commit to your lease is to sublet. Your lease agreement will detail if your lease permits you to sublet. This is a valuable option where your inability to commit to your lease is a financial one.
Subletting is where you either let another business occupy part or the whole of your commercial premises. Unlike when you assign your lease, you remain as the primary lessee under the commercial lease. This means you are still the tenant and must pay rent to your landlord even if you are no longer on the premises. However, in reality, you will collect the rent or a portion of it from the subtenant and pay this to your landlord.
5. Court Proceedings
Where you can no longer commit to your commercial lease, you may substantially breach the lease agreement. This may mean you must provide vacant possession through a County Court. However, this is an option tenants should avoid.
Commercial tenants can find themselves in a situation where they can no longer commit to their commercial lease. In these circumstances, the tenant may want to end the lease early before the lease end term date. If so, tenants may have several options, including:
- surrendering the lease;
- relying on a break clause;
- assigning the lease;
- subletting the lease; or
- going to court.
If you need help understanding your options as a tenant when you can no longer commit to your commercial lease, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
We appreciate your feedback – your submission has been successfully received.