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Ending a Commercial Lease Early

Ending a Commercial Lease Early

mood_bad The bad news first

Commercial Leases are designed to protect the Landlord's or Tenant's interests.

Solicitors (or property lawyers) have spent years creating these unwieldy, ugly documents simply to ensure that you cannot get out of your obligations.

So, let's deal with the bad news first — if you have signed a commercial lease, chances are, you are stuck with it in the legal sense (don't despair just yet, read the below first). It doesn't matter and is no excuse that you didn't seek small business advice or that the commercial property agent told you it was ok — you're in business now, with all the risks attached.

If you are a Landlord, then you might want to see our separate sheet "nailing tenants to the floor." This sheet is primarily for Tenants wishing to end or get out of their lease.

mood Now for the better news

Let's start with the obvious. Go over your lease and check that it's signed (believe it or not, it happens).

Next check for any break rights — you may have these if you negotiated it at the start but a large number of leases don't have them in. If you do have a break right it is VITAL that you comply with the instructions within the lease for ending it (e.g. if it says you must give at least 6 months notice in writing to a specific address, then this is exactly what you need to do — as any other form (even if they say it's ok) is not valid and you would end up with the lease.

notifications_none Assignment and underletting

If the above two have not helped then we need to look at other ways of getting rid of the lease, so now check the lease to see if you can sub-let or assign the same. Nearly all leases have these provisions (it's normally only very short leases that don't) and it should say something along the lines of "not to assign part only of the lease, not to assign the whole of the lease without the consent of the Landlord, such consent not to be unreasonably withheld or delayed" (similar provisions often apply to sub-letting)[*].

When you assign a lease, you pass the lease over (or assign it) to another party and they take on the obligations under the lease and although you may still be linked by virtue of a guarantee agreement, you can move on. When you underlet, you are in effect becoming a landlord of the incoming tenant and you in turn remain the tenant of the first landlord.

The problem with this is that you need someone interested in letting your property from you — and you will need a Solicitor or property lawyer to look over the lease to see what obligations will still exist. Speak to the local commercial property agents (some estate agents have a commercial arm). They will be able to advise you on the rent you are likely to obtain in the area and allow you to decide whether it's worth doing. A further concern is that many leases won't allow you to rent the Property at less than you are currently paying (or more in a lot of instances).


[*] When you assign a lease, you pass the lease over (or assign it) to another party and they take on the obligations under the lease and although you may still be linked by virtue of a guarantee agreement, you can move on. When you underlet, you are in effect becoming a landlord of the incoming tenant and you in turn remain the tenant of the first landlord.

format_clear Surrendering the lease

A further alternative is to speak to the Landlord and ask to surrender the Lease. This was much easier to do when commercial properties were easy to let — but Landlord's are (understandably) reluctant to let you surrender the lease. That said, it is always worth asking the Landlord for a price they would take in which to give up the lease. A common figure used to be a year or two year's rent but in this climate, a surveyor may be required to determine the surrender value.

business Company held leases

If your business is the owner of the lease — and your business is failing, is it worth letting the lease go with the business? That is, if your company is trading at a loss and you have a large lease, you may be able to leave all personal liability behind.

The downside of this is that in many commercial leases, they ask for a personal guarantor (e.g. an individual who will guarantee the re-payments of the rent).

error_outline Risking it

The final option is that you just walk away. If you have no money and are on your uppers then there is something to be said for handing the keys back to the Landlord and walking out. The flip side of this is that they would then have 6 years in which to come after you for the money — so even if you thought they was not going to chase you for the outstanding liability, you could find yourself being chased after you thought the debt had gone.

On a brighter note, many commercial landlords are not making individuals bankrupt as they have realised that it can cost around £3,000 just to make you bankrupt at which time, they still won't get their money.

If you want advice on your specific lease, give the experts a call on

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