Exiting a Lease Early

Exiting a lease early

There are a number of reasons why you might need to exit a business lease before the end of its term – the premises may be no longer suitable for your growing business or the company may be struggling financially.

Getting out of a lease early is not easy – it all depends on the terms of the lease.

Break Clause

Some leases include a break clause, which offers either or both the tenant and the landlord the opportunity to end a lease after a pre-defined period stated within the lease. If there is a break clause included within your lease, you must strictly adhere to the terms and conditions when serving notice on your landlord exercising the break.

The break will only be effective at certain times and you will be required to give a certain amount of notice to the landlord. There may be a specific address at which the notice should be served, or a particular method for serving the notice. Failure to follow these requirements could invalidate the break notice, meaning that you are unable to exit the lease.

Negotiation

If there is no break clause within the lease, your landlord may be open to negotiations for you to vacate the premises by entering into a surrender of the lease. These circumstances are rare and would usually only be contemplated by a landlord where they have a new tenant for the premises lined up, or you are paying a premium to cover any rent void.

Assignment

If there is no break clause, or the break date is not imminent or has passed and the landlord will not agree to surrendering the lease, you may be able to transfer (assign) it to another party. This can only take place if the lease permits assignment and you would need to find a new tenant yourself. The consent of the landlord to an assignment is required and the assignee must meet the requirements of the landlord.

It is common for a landlord to undertake reference checks on any new tenant, and you may be required to enter into an Authorised Guarantee Agreement. It also is likely that you will be responsible for the costs of the landlord’s professional advisors.

Sub- lease

You may be able to sub-let the premises if there is a clause within the lease that allows you to do so. This can be beneficial as the incoming rental payments from the new tenant will cover your own rental obligations, although it is unlikely that you will be able to charge more than your own rent.

The terms and conditions of the sub-lease will be similar to your own lease and you are likely to be the first point-of-call to answer any queries or concerns of the sub-tenant.

As with an assignment, you can expect the landlord to undertake reference requests against the proposed sub-tenant. Again, it also is likely that be responsible for the costs of the landlord’s professional advisors.

Potential cost factors

Along with the costs of the landlord’s professional advisors mentioned above, you will also need to factor the costs of your own professional advisors. You should also be aware of your obligations under the lease that need to be performed at or before the end of the term, particularly any repairing obligation.

Our commercial team at Woollcombe Yonge have many years of experience in dealing with leases and can offer you the best advice on how to approach any situation.