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"Please release me, Let me go..."
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The cost of occupying a commercial building is usually the main overhead for businesses, and increasingly, existing commercial leases are proving just too expensive. So how can a tenant get out of its lease?
First, tenants should check to see if they have the right to assign or sub-let either the whole or part of the lease. Often assignment or sub-letting is permitted with the consent of the landlord.
By assigning the lease, the existing tenant would be released from their obligations in relation to the property, but they may be required to comply with certain pre-conditions. Sub-letting, although not disposing of the lease, may at least allow the tenant to recover some costs.
Break options Many commercial leases allow the tenant to break the lease at a specified time during the term. It is, however, essential that break options are exercised in accordance common for break options to require at least six months' notice. Therefore, early consideration of the possibility of exercising this right is essential. If the date by which the notice must be given passes, the right to break will be lost, and the tenant must bear the cost of the lease at least until the next break opportunity.
Another alternative is to look to other less certain ways of releasing themselves from their obligations.
Options to break can also be used by tenants as a tool for renegotiation. The threat of losing a tenant through the exercise of a break clause and being faced with an empty building may encourage landlords to renegotiate the lease to terms considered more favourable by the tenant.
If the tenants' problems are cash-flow related, the landlord may be willing to reduce the rent or alter the terms for payment.
For example, they may When it comes time for a rent review or break option, tenants may find themselves in a strong position for renegotiation. It is certainly not in the landlord's interest to see their tenant go under, and they may even be willing to agree payment plans for any rent that is in arrears to ease the pressure during the tough times.
Alternatively, landlords may be willing to share the risk of the market turbulence and renegotiate the rent to a percentage of the tenant's turnover. Despite the current weakened state of the property market, in some circumstances it may be possible for tenants to negotiate a surrender of their lease, again with the landlord's consent.Thev may, for example, be aware of another tenant willing to pay a higher rent.
If a landlord agrees to surrender, the tenant is released from any future liability under the lease. It is important to note, however, that any breaches that occurred before the surrender remain enforceable by the landlord.
If a struggling tenant simply gives up possession of their premises and hands back their keys they may be able to prove that the landlord has agreed this as surrender of the lease.
Surrender normally requires the agreement of both parties. but if the landlord acts in a way to suggest agreement, such as re-letting the premises, the tenant will be released from their future liabilities. of For further information Log on to: 0 www.lease-advice.org • www b pf. o rg.uk • www.shadbotttaw.com