Commercial Property

How Tenants Can Quit a Commercial Lease Early

In business, the lease on your shop, office, factory or plant is often one of the biggest overheads. Therefore, negotiating favourable terms when you sign a commercial lease is imperative for the ongoing success of your enterprise and keeping your stress levels in check.

You cannot simply end a commercial lease on a whim.  Landlords want as much security as possible, and will try and tie tenants’ in to a lease for as long as possible.  However, you would be foolish not to ensure that at some points during the tenancy, you have the ability to break the lease.  Market trends and economic conditions may result in you having to upscale or downscale your premises, and you need the option to do this outside of your lease expiry date.

Commercial leases are protected by the Landlord and Tenant Act 1954.

Is your commercial lease covered by the Landlord and Tenant Act 1954?

The Landlord and Tenant Act 1954 (the Act) only applies to commercial tenancies.  It will not apply if you only have a licence to use the premises.  For a commercial tenancy to apply, the tenant must also occupy the property for the purposes of business (if the premises is used for living as well as business, protection will still be provided by the Act so long as the business activity forms a large part of the occupation).

Finally, did you contract out of the Act when you signed the lease?  Doing so would require a correct procedure to be followed by the landlord, and if this was not done, you may have an invalid lease. 

Does the lease agreement contain a ‘break clause’?

A break clause provides one or more specific dates in which a tenant can quit their commercial lease with no financial consequences.  

Can I assign my commercial lease to another business?

Only if the terms of your lease agreement allow for it.  If your lease is for less than three years, it is likely that you will be unable to assign it.

If the lease agreement does permit you to assign your lease, you will need your landlord’s permission, which they are not permitted to withhold unreasonably.  However, planning permission requirements will restrict the type of businesses permitted to operate from the premises, so you will need to bear this in mind when selecting an assignee.

If you do assign the lease successfully you will be required to guarantee the incoming tenant’s rent (refusal is grounds for the landlord to disallow the assignment) if your commercial lease was taken on after 1st January 1996.  However, your liability only extends to the incoming tenant, not any subsequent tenants.

Leases signed prior to 1st January 1996 are subject to 'privity of contract'. This means that you are liable to the landlord for all future payments under the lease, by any future tenants until the official end date of your original agreement.

Will I have to pay my landlord’s legal costs if I assign my lease?

Yes, however, you can negotiate with the incoming tenant to share the cost.

Can I ask the landlord if I can quit the tenancy early?

You can enter into negotiations at with your landlord at any time with regards to quitting your commercial tenancy early, however, your landlord has no legal obligation to allow you out of the lease and your success will depend heavily on market conditions at the time.

If you wish to end a commercial lease early, it is imperative that you seek professional legal advice, otherwise you may find yourself liable for costs for many years after physically vacating the premises.

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