How to Exit a Commercial Lease Early: Your Options

Getting out of a commercial property lease early can be difficult. In our experience the most common reasons provided by tenants are that the property is no longer suitable for their growing business, or the company is experiencing financial strains and can no longer afford the property.   

Ultimately, the terms and conditions you have agreed to will govern your options and your relationship with your landlord. We always recommend that in the first instance, tenants must work with their landlords to try to find a suitable solution.   

Negotiating a Lease Exit   

If your contract does not include a ‘break clause’ (this will be explained later in this post), then you may be able to negotiate an early exit with your landlord. This would provide a ‘clean break’ as far as your liabilities are concerned.   

However, you may want to compare the financial outlay of leaving your lease early compared to remaining at the premises. If your landlord does not agree to a lease exit, then you may be able to negotiate a temporary suspension or reduction of rent, but remember they are under no obligation to do this.   

Legal Break Within the Lease  

A break clause is an official date in the lease, which has been agreed by the landlord and tenant, where the lease can be broken without anyone facing a penalty. As a tenant you will need to give your landlord notice that you are using the break clause. The length of service of this notice needs to be carefully checked within your lease.   

Assigning a Commercial Lease  

If you do not have a break clause in your contract and your landlord is unwilling to surrender the lease, you may be able to assign it to a third party. You will need to find a tenant that fits the requirements of the landlord yourself. The landlord will also need to consent to this before the lease assignment can go ahead.   

A landlord may check certain details regarding any new tenant. These include:   

• Financial status  
• References  
• Proposed use of the premises  
• Likelihood of requesting alterations to the building 

Dependent upon the terms of your lease, you may be expected to guarantee the performance of the assignee by way of an Authorised Guarantee Agreement. You should check your lease or take professional advice to confirm this.   

Sub-Letting Your Lease   

Lastly, it may be worthwhile to check if there is a clause that will allow you to sub-let your premises. This would benefit you as that incoming rental payment from the new tenant will help cover your own obligations.  

 The sub-lease terms and conditions should be similar to your own in most situations, but there can be some flexibility here, if the lease allows. As the person looking to sublet, your costs could include letting agents fees, your own legal costs and fees for the landlord in approving the subletting.   

As demonstrated above there are options for those looking to leave a commercial property earlier. However. Your lease will include provisions that influence this and therefore you should check them carefully. Market conditions at the time will also have an impact as in a rising market with plentiful demand, the landlord may be happy to take back the property. The important factors are to understand your lease provisions and retain an open and friendly approach with your landlord to achieve the best result.   

For specific advice relating to exiting business leases and the options available to you, please get in touch by emailing [email protected] or phoning 01633 740740.