How to Exit a Commercial Lease Early

Getting out of a commercial lease ahead of time might be necessary for a number of reasons. Perhaps the business is growing and needs bigger premises quickly, or the opposite is the case. If you are struggling financially, you may be looking for a lease that offers better terms fast, or your business may sadly have ceased trading. In the current uncertain economic situation, and thanks to the ongoing double whammy of Coronavirus and Brexit, anything is possible.

Getting out of a lease is not without its complications. After all, both parties agreed to the legally binding terms and conditions at the beginning of the lease term including the thorny issue of potential dilapidations implications. “Tenants often do not fully appreciate the extent of the cost of their liabilities until they receive the landlord’s Schedule of Dilapidations, leaving them unprepared for the financial implications of that claim,” explains one commercial property expert.

If you’ve been a reliable tenant and generally on good terms with your landlord, there’s no harm in having an informal chat with your landlord to see if he is amenable to your situation and will let you off the hook, as it were. But if that doesn’t have the required effect, there are other ways that you can move on from your business lease.

Break clause

Many commercial leases include a legal ‘break clause’, a pre-defined period of time at which both landlord and tenant can terminate a fixed-term tenancy early as long as certain conditions are met. Check your lease document carefully and make sure you comply with the terms and conditions regarding notifying your landlord of your intention to leave, such as giving the required notice, or submitting your break clause notice in writing to a specific address.

Lease exit negotiations

If there is no break clause, it is still worth approaching your landlord to negotiate an early exit, although as one legal expert put it, “in the current climate and given the [coronavirus related] restrictions currently in place, it appears highly unlikely that landlords will be receptive to this. Your aim should be to achieve a clean break as regards your liabilities, and you are strongly advised to get legal advice to ensure there are no outstanding obligations to the landlord after you have left.

Cost of an early exit

You can expect an early lease surrender to involve a financial penalty which should however be less than the cost of remaining in the premises until the end of the term in order to be viable. You will normally be expected to make a proposal to terminate the lease, and it’s a good idea to provide evidence if your business is struggling financially that will impact your ability to keep up payments. The landlord may or may not choose to accept your proposal, or he may make a counter proposal such as a rent reduction for the remainder of the lease. However, he is under no obligation to do any of these things. Alongside the cost of terminating your lease early, you also need to factor in the cost of professional advice, both for yourself and the landlord.

Assign the lease

Without a break clause and if the landlord cannot be persuaded to surrender the lease in a way that makes financial sense for you, another way to get out of your commercial lease early is to find a tenant to replace you. Your successor will have to meet the requirements of the landlord’s consent, and he will most likely want to check the new tenant’s details including their financial status and references and their proposed use of the premises. Even if the new tenant passes muster and the lease assignment takes place, you will probably still have some liabilities to the landlord until the lease term has come to an end.

Personal guarantee

If your landlord agrees to assign the remainder of your lease to a third party, he may insist on a personal guarantee from you to secure the new tenants’ payments. Clearly, this is risky as it could put your own funds in jeopardy. Where the new tenant is a limited company, personal guarantees may also have to be provided by the company directors directly to the landlord. While assigning a lease allows you to move to other business premises, you still have liabilities for the old premises if you have provided a personal guarantee.

Sublet your lease

Rather than assigning a lease to a new tenant, you may be able to sublet your commercial premises to secure the incoming rental payments for the remainder of the term. Not all leases allow this so check your documents carefully for the relevant clause. The terms and conditions of any sub-lease will be similar to your head-lease, but the responsibility for managing the premises and day-to-day dealing with any issues coming from your sub-tenant will rest with you.

EAN Content

Content shared by this account is either news shared free by third parties or sponsored (paid for) content from third parties. Please be advised that links to third party websites are not endorsed by Estate Agent Networking - Please do your own research before committing to any third party business promoted on our website.

You May Also Enjoy

Overseas Property

Exploring Homes for Sale in Spain: A Guide for International Buyers

Spain has long been a top destination for international buyers looking to invest in real estate. Its combination of sunny beaches, rich culture, delicious cuisine, and vibrant cities makes it a favorite for those seeking both a holiday retreat and a valuable investment. With a growing market and diverse options, homes for sale in Spain…
Read More
Home and Living

10 Tips for Moving Home

Moving home is an exciting yet challenging experience, requiring careful planning and organization. The moving process can be stressful if not handled properly, from sorting belongings to managing time. These 10 tips aim to make your move smooth and stress-free, helping you easily settle into your new space. 1. Start Planning Early The earlier you…
Read More
Breaking News

A third of UK homes for sale are ‘chain-free’ reports Zoopla

Recent tax changes and incoming council tax premiums for second homes have unsettled property investors and second homeowners with some now looking to sell One week on from the Autumn budget, buyer enquiries for homes that are chain-free are 33 per cent higher compared to those not advertised as chain-free 41 per cent of two…
Read More
Love or Hate Rightmove
Breaking News

Rightmove’s weekly mortgage tracker 06/11/24

The average 5-year fixed mortgage rate is now 4.66%, down from 5.33% a year ago The average 2-year fixed mortgage rate is now 4.92%, down from 5.76% a year ago The average 85% LTV 5-year fixed mortgage rate is now 4.69%, down from 5.40% a year ago The average 60% LTV 5-year fixed mortgage rate is now 4.05%, down from 4.91% a year ago The average monthly mortgage payment on a…
Read More
Overseas Property

Top reasons to consider buying a luxury villa in Phuket Thailand

Those who have worked hard for many years are often looking for ways to invest their cash so that they can enjoy life to the max in their advancing years. Some might decide to dabble in the stock market or insurance policies to enhance their savings, while others might look to purchase something more physical…
Read More
How to add value to your home
Estate Agent Talk

5 Top Tips for Running a Business From Home

Have you ever wanted to start and run your own business from home? Although it’s an incredibly rewarding experience, it can be tough to set up and know where to start, especially if you have no business experience or background! Whether you want to run a small business, or have grand ambitions for eventual expansion,…
Read More