Since the arrival of Covid-19 so many businesses have been forced to temporarily close their offices and relocate their workers to their homes.
At first, many suffered teething problems, but it has since become clear that productivity can be just as high with a remote workforce. Other benefits might include reduced outgoings for the business (by eliminating the cost of rent and other expenses), a healthier work-life balance for employees and greater flexibility.
It is therefore unsurprising that many businesses are embracing remote working as their ‘new normal’ and intend to carry on the practice even after lockdown lifts and Covid-19 is no longer a major threat.
If this is something your business is planning, have you thoroughly gone through all the practical and legal implications yet?
One of the major challenges you may face is what to do with your commercial lease. Can you get out of it? And if you cannot, do you have any other options?
Can you end your commercial lease?
Neither a commercial landlord nor tenant has the right to unilaterally abandon a lease. When you signed your lease, you agreed to pay a sum of rent to the landlord for a fixed period of time – often this period is around three to five years.
This does not necessarily mean you must wait until the end of the term. Your options will usually depend entirely on the terms of the lease and your relationship with your landlord.
Before diving into your options, it is important to note what not to do – it is usually not a good idea to simply abandon the lease without the landlord’s agreement. They will be entitled to pursue you for the outstanding rent under the terms of the lease.
So, with that notice out of the way, what options do you have for ending a commercial lease?
If both the landlord and tenant agree, they can surrender the lease and walk away with no further obligations. It is often beneficial to enter into a Deed of Surrender to facilitate this process.
Otherwise, the lease can be surrendered ‘by operation of law’ and demonstrated by a clear act, such as the tenant vacating the property and the landlord granting a new lease to someone else.
A tenant cannot engineer a surrender by simply moving out of the property or handing back the keys. The landlord is within their rights to take legal action and the courts are usually prepared to take the landlord’s side on the issue of whether the surrender was accepted.
So, if the landlord will not agree to a surrender, it is necessary to explore other options.
Termination clauses, or break clauses, are terms that can be included within a commercial lease that allow the tenant (and sometimes the landlord) to end the lease early.
Termination clauses can usually only be exercised upon certain events or dates. As a commercial tenant, you will usually have to give your landlord two months’ notice that you intend to use the termination clause and end the lease.
Assignment and subletting
If you cannot break the lease, you may be able to shift its responsibility onto a third party. There are two ways you can transfer a commercial lease:
Assignment is where you stop being the tenant and the lease is transferred to a new tenant. The landlord needs to consent to the assignment and will usually require a guarantee from the original tenant in case the new tenant does not keep up with their responsibilities. So, this process is not without risk. Additionally, the original tenant will usually have to pay the landlord’s legal fees.
Subletting is when a new ‘sub-lease’ is created underneath the original lease (the ‘head lease’). While the new sub-tenant may occupy the property and pay rent, the original tenant will still be responsible for keeping up with obligations under the head lease. If the sub-tenant stops paying, the landlord can pursue the original tenant.
In many cases, the landlord will include a term in the lease ruling out any possibility of assignment or subletting. However, even where transferring the lease is possible, the landlord’s consent is always required.
What if the agreement is not a commercial lease?
Not all businesses occupy under a commercial lease (although commercial leases are by far the most common type of agreement).
The other types of occupancy agreement include:
- Periodic tenancies – technically a type of commercial lease, but one which rolls over shorter periods of time, usually month-to-month or quarter-to-quarter. These can usually be ended fairly easily depending on the stipulated notice period.
- Tenancies at will – a tenancy at will is a lease designed for short periods of occupation. The agreement will contain no time period so either the landlord or tenant can usually break it at any time in line with any notice period.
- Licence to occupy – an agreement by which the licensee can visit, occupy and cohabit a property by agreement with the owner. Licences can usually be ended simply by giving reasonable notice.
It is important to speak to a specialist commercial lease solicitor who can provide advice about what type of occupancy agreement you have and how this will affect your options for ending the agreement.
Get expert advice about ending a commercial lease
If you need to end your commercial lease, for whatever reason, our team includes specialist commercial property solicitors who can help.
We can set out all your options in plain language so you can make an informed decision about the best way to move forwards.
To set up an initial consultation with a member of our team, give us a call or fill in our online enquiry form. We have offices in Maidstone, Gravesend, Chatham, Tenterden and Tonbridge where we can meet with you to discuss your requirements.