How to end a commercial lease early

When it comes to commercial leases, circumstances can change rapidly. Whilst a lease is a legal agreement, there are ways of quitting your premises early if the need arises. 

Whether you're a commercial tenant seeking flexibility or a landlord navigating unforeseen developments, understanding the process is key. 

In this guide, we'll explore how to end a commercial lease early, from both the tenant and landlord perspectives.

Can you end a commercial lease early?

Using a break clause

The simplest way to end your commercial property lease early is to make sure there’s a break clause written into your lease when you set it up. A break clause will have set rules, including when it can be applied, the amount of notice required and any conditions attaching to its operation.

However, if you don’t have a break clause, there are still potential ways to bring to an end your occupation of the premises.

For tenants: ending a lease without a break clause

Ending your lease early becomes more challenging without a break clause, but it's not necessarily impossible. Businesses need to consider the legal, financial, and practical aspects if there is no break clause.

Here are some of your possible options:

 Assignment or subletting

1. Review the lease agreement for any clauses related to assignment or subletting. This means you would be able to find a new company to take on the remainder of your lease.
2. If allowed and the landlord agrees, consider assigning the lease to a new tenant or subletting the premises. You might want to sublet only part of the property, or the whole thing. You will need to draft a new contract.
3. This does not technically bring to an end your lease, but you will be able to vacate the premises. The assignee/sub-tenant will be paying the rent, but it’s important to know that you will still have a level of responsibility - you also need to know that the new tenant can cover the rent.

Negotiate a surrender

1. Discuss the option of surrendering the lease with the landlord.
2. In a surrender agreement, both parties agree to end the lease, typically in return for a negotiated financial settlement. This may cost to end the lease, but may work out financially better for you in the long run.

Legal advice

1. Seek legal advice to explore any potential legal avenues for terminating the lease that haven’t already been covered.
2. A solicitor can assess the lease terms and potential grounds for termination, for example if there has been a breach of the lease by the landlord. If the landlord doesn’t agree, it is more difficult to end the lease, but in most cases a compromise can be found. A legal expert will be able to thoroughly look through your contract and identify any opportunities for ending the lease.

 

Speak to a lawyer about your commercial lease

 

For landlords: protecting interests without a break clause

Landlords, too, can benefit from a well-drafted lease. If your tenant has been in touch to terminate their lease early, or you are considering this possibility for other reasons, then refer to your lease and consider your options below. 

Negotiate

1. If a tenant approaches with a request for early termination, engage in negotiations to understand their reasons and explore possible solutions.
2. Consider compromises that protect your interests, such as a negotiated settlement in return for a surrender of their lease.

Review lease terms

1. Carefully review the lease for any clauses related to termination or early exit.
2. Ensure that the tenant complies with any notice periods or conditions outlined in the lease.

Legal advice

1. If you believe the tenant is in breach of their lease, consult with a solicitor to understand the legal implications and explore your options available. For example, if the tenant has defaulted on their rent, you may have grounds to forfeit the lease.

What are the cons of ending a commercial lease early?

For tenants:

1. Financial penalties – terminating a lease early may incur financial penalties, such as forfeiting a deposit.
2. Business disruption – relocating your business can cause disruptions and additional expenses, impacting operations and potentially affecting client relationships.

For landlords:

1. Loss of rental income – an unexpected termination can result in a loss of rental income, creating financial challenges for landlords.
2. Vacant period – finding a new tenant after your existing tenants have vacated the property may take time. During the vacant period, there is nobody maintaining the premises. There are also expenses in connection with sourcing a new tenant, including agent’s fees.

What’s the process for ending a commercial lease early?

If you’ve decided that ending your commercial lease early is the right decision for you, here are the steps you need to take to ensure legal compliance and a smooth transition. Be sure to speak to an experienced commercial property lawyer who can advise you on the best option for your business.

1. Review the lease

• Examine the terms and conditions outlined in the lease
• Ensure compliance with notice periods specified in the agreement

2. Negotiate with the other party

•    Open communication with the other party to discuss ending the lease early
•    Explore potential compromises, such as a negotiated settlement

3. Serve notice

•   If a break clause is in place, follow the specified procedure for giving notice
•   Ensure that the notice is in writing and complies with the terms outlined in the lease

4. Financial aspects

• Be prepared for potential financial implications,e.g. a lease surrender payment 
• Document any financial settlements agreed upon in writing to avoid future disputes

5. Vacate the premises

• Vacate the premises according to the agreed-upon timeline
• Conduct a thorough property check to address any outstanding issues

Get legal assistance from LawBite

The ability to end a commercial lease early provides businesses with the flexibility they need to thrive. However, it's essential to approach this process with a clear understanding of the legal implications and potential consequences. Whether you're a tenant seeking flexibility or a landlord aiming to protect your interests, getting legal advice from an expert is key.

If you’re considering the early termination of a commercial lease, take advantage of our free 15 minute legal consultation and see how we can help. Book online or call us on 020 3808 8314 and we'll connect you with our top lawyers to help you solve any problems you may have regarding your commercial lease.

 

Addtional resources

• Commercial Leases - all you need to know
• Transferring a commercial lease
• Understanding dilapidation costs when you end a lease