Businesses may want to get out of a commercial property lease early for various reasons, such as upscaling and downsizing. Birchall Blackburn Law’s Jennifer McGowan runs the rule over the options.
Termination of a lease can be a complex and technically challenging process that hinges on the terms and conditions you have signed up to.
If you have enjoyed a good relationship with your landlord you should make a direct approach and explain your situation in the hope they will sympathise.
If your business is in difficulty and you can show that you may not be able to carry on paying rent, the landlord could take a pragmatic view and allow you to end the lease. In some cases, landlords have been known to reduce the rent, possibly for a set period to allow you to manage short-term financial issues.
Find out if your lease has a ‘break clause’
Leases sometimes include break clauses giving both the tenant and landlord an option to terminate the lease after a set period, such as two years into a five-year lease.
If you do have a break clause, the importance of sticking to the terms and conditions – such as giving written notice – can’t be overstated. If you don’t meet these requirements, your hopes of an early departure could be left in tatters.
Even if you don’t have a break clause, your landlord may be willing to negotiate an early termination. This could give you the fresh start you are looking for, although professional advice would be needed to legally confirm the termination agreement.
Sub-letting is sometimes a solution
Some lease agreements contain a clause allowing the tenant to sub-let the premises. In this way, you can use rental income from the new tenant to cover your own payments.
Sub-leases typically mirror the main lease although you would probably have to take on greater responsibility for managing the building and would effectively become the landlord of the sub-tenant. This may prove to be a costly and unwelcome distraction from your main business activities.
In addition, the sub-letting process often means paying for professional advice as well as the cost of finding a tenant.
Look into assigning your lease to another business
In some instances, assigning the lease to a third party is a viable option. As with sub-letting, you would have to use your own resources to identify a new tenant, who would have to meet the landlord’s requirements.
Also, assigning a lease usually means personally guaranteeing the new tenant’s payments, which could put you at financial risk.
As always with any commercial property issue, seek professional advice as early as possible.