Stuck in a long-term lease? What are the options for exit
Are you stuck in a long-term lease on a commercial premises and need to exit it?
Our recent blog highlighted the increasing trend for short-term leases on commercial properties. But what if you are already in a long-term lease and now need to exit? Perhaps you have expanded and need larger premises. Or, by contrast, your business has shrunk, and you need to downsize. Or you simply cannot afford the premises now.
The ability to exit a lease early depends on the terms of your lease. The state of the property market will be another factor. So, what are the available options?
Options for exiting a long-term lease
Break clause
You may have a break clause in your lease agreement. If you do, make sure you check the notice period and the requirements for activating it very carefully. It is easy to make a mistake and render it invalid. A break clause allows you to exit the lease early without penalty.
Assignment
You may be able to get the landlord’s consent to pass the lease on to another someone else – referred to assigning the lease. This would have to be with the landlord’s consent, and they may require you to provide personal guarantees for the new tenants. This means your liabilities would continue and, as such, this needs careful consideration.
Subletting
You may wish to stay in the premises, but perhaps you don’t need all the space. It might be worth investigating if you can sublet part of the premises. Or if you don’t want to stay in the premises, it may be possible to sub-let all of the property. Again, you need the landlords permission, and you continue to pay the rent.
Surrendering the lease
If none of the above options are available, you may be able to negotiate an early release from the lease agreement. This is known as surrendering the lease. In this instance, it is likely you would have to make a compensation payment to the landlord.
Renegotiation
If you cannot negotiate an early exit, perhaps you can renegotiate terms with the landlord. If you are a reliable tenant and they would otherwise struggle to find replacement tenants, they may be willing to negotiate on rental terms and costs.
This is a complex topic. Legal advice can help you decide the best option and how best to proceed. For further advice and support, please contact:
T: 01895 256151