COVID-19 has had a significant impact on almost every business in the UK. For many businesses, it means that they may no longer require their business premises, or in some cases are simply no longer able to justify or afford the rental commitment. There are many other reasons, not directly related to COVID-19, that you may wish to exit a commercial lease agreement. Perhaps your operations have downsized or expanded and the premises are, therefore, no longer fit for purpose? Or maybe you need to change location? Regardless of the circumstances, if you need to get out of a commercial lease early, there are several options which may be available to you.
In this article, we look at the factors which may affect whether you can get out of your commercial lease before expiry of the lease term.
Is it difficult to get out of a commercial lease early?
Getting out of a commercial lease early can be challenging. After all, a lease is essentially a contract which is designed to give the landlord an element of security and assurance. Whether you are able to end the lease early will generally depend upon the terms of your lease, but you may be able to come to an agreement on commercial terms with your landlord.
Surrendering a commercial lease
If you have a good relationship with your landlord and have been a reliable tenant, the landlord may be sympathetic to your situation, in which case you may be able to reach some form of agreement. In doing so, you might be required to pay a certain amount of financial compensation for surrendering the lease. However, if your landlord is unwilling to agree to such an arrangement, there may be other more formal, legal options available to you.
A break clause in the lease
Many leases include what is known as a ‘break clause’. These types of clause afford either or both landlord and tenant the opportunity to bring the lease to an end after a predefined period of time. Your solicitor can check your lease for a break clause and explain to you how this might operate in your favour.
If there is a break clause in your lease, you will need to adhere to its terms, which may stipulate a period of notice and how you must notify your landlord. For example, you may need to provide your landlord with several months’ notice in writing, or you may need to notify your landlord at a specific address. These requirements must be met, as failure to do so could invalidate your exit from the lease.
Assigning or underletting a commercial lease (‘alienation’)
Where there is no break clause in your lease and your landlord is unwilling to negotiate the surrender of the lease, it may be possible to assign the lease or underlet the premises to a third party. These are commonly known as ‘alienation’ provisions. You will generally be responsible for finding someone to take on the lease or the premises and the approval of the landlord will unusually be required in relation to the incoming third party, before the lease can be assigned or the premises underlet. Again, your solicitor can check your lease for alienation provisions and explain to you how these might operate.
For all commercial property matters contact James Burgess on 01484 821 300 or Commercial Property for more information.