3 ways to end your Commercial Lease early
There are many reasons a Tenant may wish to end a commercial Lease early. You may have outgrown your office and need a bigger space or, you may be struggling financially and need to significantly downsize to protect from insolvency.
There has also been plenty of commentary over the last couple of years about the ways in which we work and the future of the office – including our own article “The changing face of the office environment”. Some have predicted the death of the office and the significant decline of the high street. We have also seen a number of large corporates closing swaths of city centre office space. Other people are firmly in the ‘office’ camp and strongly believe that working together in the same space brings many (often intangible) benefits. Most people are undoubtably enjoying more flexibility in their work hours and location.
Whatever the reason you want to end your Lease early is often not as easy as many believe it to be. Here are the 3 main ways in which you can end your Lease early:
- Exercising a Break Clause
If your Lease contains a break clause (sometimes called a break option) you may be able to rely on this to end your Lease early. But be warned – a purported exercise of the break option will not be enough to end the Lease in itself. Any break clause provisions as to service of notices, and any break clause conditions, must be wholly satisfied otherwise the break notice is ineffective and the Lease continues past the break date.
A break clause can offer one or more fixed break dates or may allow termination at any time subject to a minimum notice period. Conditions can include paying rent and service charge up to the break date, ensuring there are no outstanding material breaches of the lease (sometimes repair and condition is excluded from this) and delivering the Property back to the Landlord free of any occupier.
Given how easy it is to fall foul of break conditions and service requirements it is extremely important to obtain legal advice before serving a break notice. A good lawyer can help to ensure your exercise of the break is effective.
- Surrendering the Lease in writing
Your Landlord may allow you to end the Lease early by surrender but this is a matter of negotiation between the parties. There is no obligation on the Landlord to accept a surrender. However, the offer of a compensatory payment for loss of rental income pay help in persuading them.
A written surrender will record the date of the surrender, any compensatory payment to be made, what has been agreed in relation to dilapidations at the Property and whether the parties can still claim against the other after surrender for any breaches of the Lease pre-surrender. The form of the document will depend upon whether your Lease is registered at HM Land Registry.
Whilst a surrender document can be short it’s provisions can have important legal consequences. You may make what you think is a final payment to your Landlord - only to later receive a demand for a dilapidations payment or service charge balance. It is, therefore, vital to obtain legal advice before you surrender your Lease and enter into any such document.
- Surrendering a Lease by conduct
This usually involves clearing out the Property and handing the keys back to the Landlord. However, the Landlord may not accept this as a surrender (there is no legal obligation on them to do so) and you (or your Lease guarantor) may face legal action further down the line.
In 99% of cases, it is absolutely preferable to have a surrender agreed to by the Landlord in writing. If you are thinking of surrendering a Lease by conduct legal advice should be sought before you take any action. Otherwise you may face continued demands for rent, service charge, insurance, utilities, rates and other sums by the Landlord.
The key in all of the above options is to take early legal advice from an experienced solicitor. A missed break date, or ineffective break exercise, can mean you are locked into your Lease for years to come. And a surrender can take months to negotiate.
If none of the above options are viable for you, you may be able to assign or underlet your Lease instead. Our next article will look at these options as alternatives.
These notes have been prepared for the purpose of articles only. They should not be regarded as a substitute for taking legal advice.