Make sure you get advice before signing on the dotted line – walking out of a lease may not be as easy as you think.As a tenant, there are many reasons why you might wish to terminate a commercial lease. Your business may not be performing as well as expected, your circumstances may have changed or new opportunities may be presented to you. Hopefully the reason you need to leave is that your business has done so well the leased premises are too small and you need to expand! The question then becomes is there anything you can legally do to get out of your existing lease?
Ideally your planning should start before you ever sign a lease. You should factor an “early exit” into your lease negotiations and have provisions inserted that allow you to walk away on set anniversaries or in the event that certain circumstances come to pass.
Alternatively you may be wise to take a short term lease for one or two years with an option to renew or with the protection of the Landlord and Tenant Act 1954 (which gives statutory rights to renew).
The important point is that the options work in your favour and you have been fully advised on the terms of any breaks or options to renew to ensure they can be validly exercised because whether a tenant has complied with the terms of break clause is often litigated.
Let’s assume you want to get out of your lease before the term expires and you have no provisos for early termination.
One choice is to simply ask your landlord to terminate your lease. They might be willing to do so if the rental market is good and the space can be easily relet, perhaps for a higher rent. If that’s the case, good for you. But that probably won’t happen.
Another possibility is to approach your landlord about a buy-out. While it’s true that if your lease still has a long time to run, a buy-out may be difficult to negotiate. If your landlord believes he’ll be able to re-let your space without too much trouble, he may agree to let you out of the lease if you pay some consideration. Or you could offer to let him keep part or all of your security deposit in exchange for letting you out of your lease.
In the event the Landlord does let you go either by agreement or for a fee you ought to have put in place a properly drafted deed of surrender, you may not be released from the lease covenants unless this aspect of the transaction is dealt with. You should also bear in mind that you will be liable for the rates until the lease is properly surrendered and you can prove that fact to the local authority.
You could just walk away from the lease, but if you do that, the tenant who signed the lease (most likely you) and any guarantor would be liable for the rent for the rest of the lease or until the landlord finds a new tenant. You would also be liable for any want of repair and the cost of getting the property into marketable decorative order and this can prove very costly. If you did want to walk away, then you should attempt to hand the keys back to the Landlord and make it unequivocal that you are handing possession back to the Landlord. The likelihood is your Landlord would not accept possession if it is savvy, but there is a chance that the Landlord could accept such a surrender of the property.
When it comes to leasing space, the smartest thing you can do is to make sure you’ve got your bases covered before you sign on the dotted line. That way, you’ve got contingency plans in place no matter how successful your business is.
Pinney Talfourd’s commercial property solicitors can advise and review your lease before you commit, ensuring that you don’t get caught out. Contact the team for more information.
This article was written by Julien Pritchard, Partner and Head of the Commercial Property Department at Pinney Talfourd Solicitors. This article is only intended to provide a general summary and does not constitute legal advice. Specific legal advice should be taken on each individual matter. This article is based on the law as at July 2015.