In the current turbulent economy, many businesses have found themselves leasing premises that they no longer need or which don’t meet their current needs. Many are asking what they can do about it. The standard answer here is: whatever your lease agreement says you can.
It’s all too common for tenants and occupiers to enter into leases without thinking about what might happen if circumstances change. The time to think about flexibility is before you sign, not in the middle of a lengthy fixed-term agreement. However, many businesses are where they are.
What options might you have to end your lease early?
If your lease has a break clause falling due, this is likely to be the most straightforward option. However – and we can’t stress this enough – you must conform strictly to the requirements of the break clause if you want to successfully exit. The terms will specify who you need to notify, when, in what form and at what address. These conditions form part of your legal contract. Any skimping on the detail could be costly.
Hicks Baker recently published a top tips guide to exercising break clauses that you might find helpful.
https://www.hicksbaker.co.uk/top-tip/top-tips-for-exercising-a-break-clause-during-the-covid-19-pandemic/
Negotiate an Early Exit
Surrendering your lease can only be achieved with your landlord’s agreement. The landlord doesn’t have to agree, but a negotiated early exit may be a better outcome for them than an insolvent tenant. The price for their agreement will probably be a financial settlement to compensate for the loss of future rent.
There will be further costs associated with a negotiated early exit that you will have to balance against the probable losses you will incur if you stay put. Costs are likely to include a sum for dilapidations as well as legal fees.
You should take professional advice to ensure that your interests are fully protected and that you will have no further liability once the lease has been brought to an end.
Assigning the Lease
If your lease agreement allows it, it may be possible to assign the lease to another party. You may have to find an organisation that meets the landlord’s requirements in terms of financial standing, references, but it is not uncommon for there to be delays or for deals to collapse particularly if all the relevant information about the new business is not provided to the landlords expeditiously.
Subletting
Where assignment may not be possible, if for example the covenant strength of the new tenant is not strong enough to secure a landlord’s approval, the rent is too high, or if only part of your premises is surplus to requirements, subletting may be the better or indeed only option.
Under such arrangement you remain responsible for complying with your lease whilst passing on those duties in turn to your subtenant, which you may not feel or be equipped for.
If you find yourself in the situation where you need to explore your options for an early lease exit, or indeed you have done so but do not know how to manage you subtenant, your next move should be to take professional advice. Hicks Baker can advise you on what may or not be achievable and explain the nuances of each option.
And if you’re about to sign a new lease agreement, make sure you understand what flexibility you will have should your circumstances change.
For specialist lease advice, please contact the team at Hicks Baker on 0118 959 6144 or email info@hicksbaker.co.uk.
