If you, as the tenant, need to get out of a commercial lease, what are the options available to you?
Expiration of the term
Provided that the Landlord and Tenant Act (the Act) has been contracted out of when the lease was created, your lease will come to an end when the term runs out. If it is not long until that date, then waiting it out may be the best option for you to avoid any additional hassle.
Serve a three months notice
If your lease is protected by the Act, then the tenancy will continue even after the term of the lease has expired. The tenancy will only end in accordance with section 27 of the Act. This section allows the landlord or the tenant to end the lease on or after the contractual expiry date.
There must be at least three months remaining on the term of your lease for the tenant or landlord to serve a section 27 (1) notice on the other party, the lease can then end on the original expiry date.
If the contractual date has already expired, the landlord or tenant can serve a section 27 (2) notice of not less than three months, to bring the tenancy to an end at any time. This can only be done if a section 26 notice of a new lease has not been served.
A break clause
If your lease includes a break clause, also known as an “option to determine”, you can end the lease early by serving a notice to the landlord in accordance with the conditions of the lease.
These conditions may include things such as a certain date needing to have passed before notice can be served. Make sure to check your lease to see what conditions apply.
Surrender of the lease
A lease surrender is an agreement between the landlord and tenant to bring the lease to an end earlier than the original expiry date. You can speak to your landlord and request this, but the landlord is not required to agree.
This a commercial negotiation and the landlord is likely to require a premium to agree to the surrender either because the property will be difficult to relet or because there might still be a few years remaining on the lease.
A surrender agreement may also seek to achieve a full and final settlement between the parties, including dilapidations, to help give you a clean break.
Assignment
Many leases often allow for an assignment, which is a transfer of the interest of a lease to a third party for the remainder of the term. If you find a new tenant to assign the lease to you will usually need the landlord’s consent to do so. Often times the tenant will also have to pay the landlord’s legal costs in relation to the assignment.
The landlord will likely want an authorised guarantee agreement (AGA) from the outgoing tenant. This is essentially guaranteeing that the new tenant will fulfil the covenants in the lease. By giving an AGA you agree to bear the burden for non-performance. If the new tenant fails to comply, the landlord will be able to take action against you to recover rent or any other costs resulting from non-performance.
Underletting
The last option to consider is underletting. As above, many leases allow for under-letting, but you should always check your own lease to see if any of the options mentioned are available to you. A lease may allow for underletting of the whole or part of the property. Again, it is likely that the landlord’s consent will be required beforehand. The difference here is that instead of transferring your interest, you will be keeping responsibility for your own covenants such as paying rent. You will instead be collecting rent from the tenant you underlet to and ensuring conditions in the underlease match the head lease to prevent any issues with covenant compliance.
If you are looking to end your lease early and require assistance with any of these options then call us today, on 0121 268 3208 or send us an email at info@onyxsolicitors.com with your query and we will get back to you.
