Terminating a Lease Early

This article discusses the options you have if you want to terminate a lease before the end of its term.

The lease should be examined to determine if it contains: the right to terminate early,  a break clause;allows assignments to third parties; or allows underletting.

A Break clause is a term  in the  lease which enables you to end the lease early. Where the lease contains a break clause there are usually conditions in relation to the timing, manner and person you must serve the break notice on.

Conditions often include the payment of all rent and other sums due under the lease, and giving up possession of the property, which includes removing all tenant fixtures. Compliance with the conditions is imperative to ensure the effective exercise of the break clause.

Assignment occurs when a lease is transferred to a third party  who becomes the tenant under the lease. The Lease will specify the circumstances under which an assignment is allowed.

Usually, an assignment of the whole will be permitted with the landlord’s consent, which should not be unreasonably withheld or delayed. The landlord will review the financial standing and references of the assignee to ensure that they will be able to pay the rent and comply with the other lease obligations.

Depending on how the assignee wishes to use the property, they may require a variation in the lease. The terms of the lease will determine whether this is possible.

The existing tenant may be asked to enter into an Authorised Guarantee Agreement (AGA) which requires them to guarantee the performance of the lease covenants by the assignee.

Under an AGA if the assignee does not pay the rent or breaches other covenants, the landlord could ask the departed tenant as a guarantor to pay any outstanding rent or remedy the breach.

Underletting is where the existing lease remains in place, but the tenant under-leases the whole or part of the property to a third party. The existing tenant becomes the landlord of the third party and remains the tenant bound under the existing lease.

Surrender is where you give the property back to the landlord and the lease ends at that point. You may be able to negotiate with the landlord for the surrender of the lease. It is up to the landlord to agree to a surrender and the landlord may require the payment of a lump sum to do so.

This is an area where it’s best to take legal advice when negotiating these terms into a lease you are taking on as well as when you are trying to exit. Advice on break clauses, AGAs, assignments and other matters can save a business many thousands of pounds.

Please contact our commercial and residential property specialist solicitors Paula Felton or Beverley Obrart if you would like to discuss this further. Paula and Beverley have over 60 years combined experience in this area.

pfelton@feltonssolicitors.co.uk

bobrart@feltonssolicitors.co.uk

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