As your business grows and changes over time, you are likely to reach a point where you need the right commercial property and lease not just to facilitate your day-to-day operations, but also to add value to your business overall. If you cannot make adjustments or negotiate on your current premises lease, the only option might be to leave. While exiting a commercial property lease early in the UK can be tricky, there are a few options you, as the business owner, can explore:
Break Clause:
- This is your most straightforward option if it exists in your lease and provided the timing is right. Within a commercial property lease, a break clause is an opportunity (usually on a specific date), to bring the lease to an end, before the original expiry date. Break clauses are often complicated by conditions, for example rent payments being up-to-date, the property being vacant, or fulfilling any repair obligations specified in the lease. These conditions must be precisely complied with. It’s a complicated business with many pitfalls for the unprepared or unadvised. For those reasons, it is often overvalued and overused. You pay a penalty actual or implicit and many more go unused than are used and hence it may not be your best option.
Alienation
- Another option available to you, should you need to exit your lease, is to try finding a new tenant to take over the remaining lease term. The ‘Alienation’ section in your Commercial Lease should lay out your rights to sublet and assign – this is a key lever to ensure future flexibility for your business. An alienation clause in a commercial lease allows you to sublet the premises in the future, potentially giving you the flexibility to find another tenant to take on your existing premises and relocate to somewhere new that better suits your needs. However, you remain liable as tenant of the ‘Head Lease’. What people miss is the difference between subletting and assigning. In assignment, the original tenant transfers their entire remaining interest in the lease to a new tenant, substantially lowering but not removing completely, their liability. This involves getting the landlord’s consent, as they’ll likely want to vet the new tenant’s financial standing. Again, familiarising yourself with the alienation clause in your lease is key here – what are the conditions and terms you need to abide by? Is there an alienation clause at all? Sometimes it gets left out.
Negotiated Surrender:
- You also have the option to approach your landlord and discuss surrendering your lease early – in effect, tearing it up. It may not be as difficult as you imagine, if for example, the landlord has a reason to want the space which you occupy, to offer to another business. There may be compensation and be prepared to negotiate. See it from the landlord’s perspective. If you really need to leave, you need to ensure there is something in it for them, to ensure they say “yes”.
Renegotiation
- This may surprise you, but you can often negotiate a new lease on favourable terms with your current landlord. Remember, they are only human too! Assuming you have been a good tenant and if there’s a danger your commercial premises might remain empty on the open market, your landlord may be happy to keep you as a tenant. Remember always, that there needs to be a win on both sides, so again, try to see it through the landlord’s eyes. What do they want out of it and what can you ask for, that the landlord will be prepared to give. Lease terms that are more in your favour? As the old saying goes: If you don’t ask, you don’t get!
Which one is right for you?
As always, I advise that your lease should only ever be as long as you can forecast your business growth, into the future! So whilst a break clause might seem like an obvious option to exit your lease and cover your bases should things change in your business, it’s not always the most useful and it always comes at a cost, added to which you do have other options available to you as we have explored in this blog.
If you’re considering a commercial lease exit, the most important action you can take is to ensure you understand your rights and obligations. I have many resources in the form of blogs and videos on this website to help you do that. Or of course, if you’d like to discuss it with me, please do get in touch. I would love to support you to get the right premises on the right commercial terms, to ensure your business has what it needs to thrive. Often with this sort of negotiation, you only get one shot and to get a flat “no” from your landlord, can be disheartening, not to say damaging to your business.