Time to break free? Top tips on ending a commercial lease - Nick Southwell of Willans LLP
Your business's needs change over time, so it's important for you to remain agile when it comes to your premises.
The challenges of the pandemic have only compounded this, and it has never been more important to have a commercial lease that offers you the flexibility you need.
Many commercial tenants will already know that if you don't wish to stay put, you can serve a notice on your landlord under section 27 of the Landlord & Tenant Act 1954 on or after expiry of your lease, just as you have the right to renew it if you want to stay (provided there is security of tenure).
However, your business's property needs won't always align perfectly with the expiry of your commercial lease, so it's common for tenants to want to exit their lease early. In this scenario, tenants may choose to exercise their 'right to break' (provided that there is a clause in their commercial lease which allows early termination).
There are lots of ways in which to end a commercial lease, and the options available to you will depend largely on the circumstances and timing - which is why we'd always recommend getting bespoke advice from a legal professional. There are, however, some common pitfalls to avoid when ending a lease. Here are some of the biggest dos and don'ts:
DO: Be on your best behaviour
If there is a "subsisting breach of covenant or condition", no matter how trivial or small it may seem, you could be prevented from exercising your break right. The rules around break clauses are very strict, and you'll need to have your lease checked thoroughly (preferably by a professional) to make sure you're complying with all of your obligations. There are likely to be strict time limits, so pay close attention to the finer details.
DO: Get your facts right
When it comes to serving a notice to terminate, thorough checks should be carried out to make sure the landlord's details are correct. For example, if the landlord is a company, you should be checking for their registered office (and that the company is still active). Be sure that you know details of all the parties to the lease and leave yourself (and your professional advisors) plenty of time to carry out these important checks.
DON'T: Forget to take away all of what is yours (but not what might not be!)
Giving vacant possession or giving up occupation are common conditions of exercising a break, but they will also be requirements at the end of any leases.
Care needs to be taken though, as if a stripping out of the property goes too far it might make the property unusable and be a breach of covenant.
DON'T: Forget about 'continuing obligations'
Don't think that a break notice or a section 27 notice is a "free pass" - the lease and its obligations for a tenant continue until the lease is at an end.
This will mean paying the rent on time, keeping up the property in accordance with the terms of the lease and ensuring that you continue to adhere to any relevant covenants. You may also have to comply with obligations under any licences granted during the term.
DO: Be proactive in the run up to the exit date
Where possible, it can be beneficial to engage fully with the landlord. This may present an early opportunity for dialogue and potential settlement. After all, it's in both parties' interest to make sure that the exit goes smoothly, so establishing a good channel of communication with the landlord is essential. If the landlord refuses to engage it may mean that he does not accept the break right has been operated.
DO: Try to agree with your landlord some of the essentials and, if possible, commit the agreement to writing
This is the best possible advice to tenants, who will want to ensure that their exit is as smooth as possible. It may also be of significance to a landlord to know how much, and more important when he is likely to get paid in relation to any terminal dilapidations claim.
A simple document recognising that a compromise of the parties' respective rights has been agreed is sufficient but look out for the potential "tenant traps" where there may be a right to recover over-paid rent paid in advance of the break date.
DO: Watch our webinar for more information
You can watch a free recording of a recent webinar via Willans' website, in which the firm's property litigation lawyers take you through the options available for ending a lease early and the pitfalls to avoid on commercial property.
Find out more about drafting and serving break notices, ensuring that a break is effective, dilapidations and more in this webinar, which will be of interest to commercial tenants, surveyors and agents. Or for bespoke advice on your property legal needs, get in touch.
Senior associate at Willans LLP solicitors, Nick Southwell leads the firm's Legal 500-rated property litigation department.
The team acts for a wide range of businesses with commercial property needs, including landlords, tenants, investors, limited companies and not-for-profit organisations (including national charities), helping them to manage disputes across their entire portfolios.
For clear, practical advise on ending a commercial lease, get in touch with the firm's leading property dispute solicitors and lawyers on 01242 514000.
For more information, visit https://www.willans.co.uk.
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