How To Get Out Of Your Commercial Lease Early
As England comes out of Coronavirus lockdown number two, business owners who sell non-essential items have been allowed to open for the first time in a month. However, there are rumours that the five-day window at Christmas, where up to three families can meet inside each other’s homes, will result in a further lockdown being required in January 2021. Hopefully, this will not come to pass, but for some businesses, it will be the end of a long and difficult struggle to survive this once in 100 years’ pandemic. For many SMEs, especially those who have moved to predominantly trading online, being able to end their lease before its official expiry date could help enormously with freeing up capital and managing cash flow. But how can you end a commercial lease early, without ending up in a bitter commercial property law dispute with your landlord?
Talk to your landlord
Both landlords and tenants have found the past ten months financially difficult. However, the recent announcements that effective Coronavirus vaccines are now available mean that there is a light at the end of the tunnel. If you enjoy a good relationship with your landlord, the first step is to talk to them and see if there is an option of ‘pain sharing’. This could provide a way for you to keep your physical premises and provide your landlord with the certainty that in the depths of a predicted 2021 recession, they are not left with trying to find a new commercial tenant.
Pain sharing requires both parties to be transparent with each other. The objective is to create a win/win solution for everyone. For example, you and your landlord could agree to a reduced percentage of rent for 12 months, with a provision to pay the balance over two to five years to allow you to manage cash flow in recovery.
Check your tenancy agreement for break clauses
Some leases include a break clause which allows the landlord or the tenant to end the lease early after a pre-defined period. If you plan to exercise the break clause, make sure to follow the procedure set out in the tenancy agreement. Not doing so could result in a costly dispute developing. You will also need to adhere to all your responsibilities regarding maintenance and dilapidations.
Assigning the lease
If you cannot negotiate an early exit with your landlord and there is no relevant break clause to utilise, you may, depending on the terms of your commercial lease agreement, be able to assign the remaining term of your lease to a third party. Your landlord will most likely want to evaluate the potential assignees (who you will have to find) and provide their consent.
Assigning a lease comes with its own legal pitfalls; therefore, it is essential to get advice from a commercial property Solicitor before you begin the process.
Sub-letting
If your commercial tenancy agreement permits you to sub-let part of the premises, this may provide a way to ease your financial burden. The incoming rental payments from the new tenants can cover your obligations. However, you will be responsible for managing the new tenant and if there are any problems concerning the arrangement, the landlord will look to you to deal with the matter.
Wrapping up
It is easier to end a short-term lease early than one that spans many years. Much will depend on your landlord’s financial position and how easy they are likely to find a new tenant. The need to consult an experienced commercial property lawyer early on in the process cannot be over-emphasised. They will help you understand all the options available to you and ensure your best interests are protected.
Guillaumes LLP Solicitors is a full-service law firm based in Weybridge, Surrey. We have a highly experienced commercial property team who can assist you in ending your commercial lease. To make an appointment, please call us on 01932 840 111.