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If your present commercial lease is no longer meeting your business needs or you are unable to keep up with rent payments due to the impact of COVID-19, you may wish to exit your lease early. There are several options available to you as a tenant depending on the terms of your lease and your surrounding circumstances. These are as follows:

 

1) A Legal Break Within the Lease

The first thing to consider is whether your lease includes a break clause. The break clause may provide that the lease can be terminated on a fixed date, or at any time after a specific date.

If you wish to exercise your right to break, time is of the essence and there are strict requirements as to form and service which must be complied with for the break to be validly exercised.

 

2) Negotiating a Surrender or Temporary Rent Reduction/Suspension

If you don’t have a break clause in your lease or the relevant break date has passed, you may be able to negotiate an early exit with your landlord by way of a mutual surrender. You will need to agree the terms of the surrender with your landlord and possibly any premium payable.

If your landlord does not agree to a surrender, you may at the very least be able to negotiate a temporary suspension or reduction of rent.

The Coronavirus Act 2020 contains express protections for business tenancies that restrict the landlord’s ability to forfeit the lease until 30th June 2020 (although this period may be extended). Although the landlord might not be able to forfeit the lease due to non-payment of rent at this present time, you are still able to serve a statutory demand, claim against guarantors or claim damages.

 

3) Assignment of the Lease

If the landlord does not agree to the surrender of the lease, you may be able to assign it to a third party. You will need to consider the alienation provisions of the lease to see what restrictions apply. If the lease contains a qualified tenant’s covenant not to assign, the LTA 1927 imposes a statutory duty on the landlord not to unreasonably refuse consent.

Third party consents may also be necessary, for example from a superior landlord or mortgagee, and you will typically be required to enter into an Authorised Guarantee Agreement. Careful consideration must also be given to whether the assignee proposes to change use of the premises or charge the lease as further landlord consent may be required.  

 

4) Sub-Letting Your Lease

Alternatively, you may be able to sub-let your premises to a new tenant.

Again, consideration must be given to the terms of your lease to see whether this option is available to you and landlord consent will be required.

With regards to rent, the Lease Code 2007 provides that the sublease rent should be the market rent at the time of subletting and the terms of the under-lease must be carefully considered as you will now act as landlord for the new tenant.

It is worth noting that your ability to assign or sublet the Property is driven by the market and, whilst these options are available to you, finding a tenant to take over your lease may prove difficult in the current climate.

 

How Can Howells Solicitors Help?

If you find yourself in a position where you wish to bring your business lease to an end early and would like advice on your options, please get in touch with our experienced commercial property lease team. We offer a personalised, affordable service and can review your lease to ascertain the best option for you.

You may also find the following blog piece informative: Are You Able to Run a Business From Residential Premises?

 

 

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