Jacksons Law associate solicitor John Bewick answers some crucial commercial property questions for tenants…
For many businesses, the Coronavirus pandemic necessitated a shift to remote working from home as the new normal.
The rise of online platforms have made that transition much more seamless and consequently, businesses may now find themselves evaluating whether the premises they occupied prior to lockdown are still suitable.
What are my options to end the lease?
There are a number of options for tenants looking to relocate. The lease term may be due to expire shortly, and the tenant should prepare to vacate the premises at the end of the term. The tenant should check the requirements of the lease, such as removing any alterations it has made to the property and should also ensure they have complied with their repairing obligations under the lease to seek to avoid any claim from the landlord for dilapidations.
Is it possible to transfer the lease to another party?
If the lease is not due to expire, the tenant may seek to transfer (assign) the lease to a new tenant. Landlord’s consent to the assignment will be required and the landlord’s costs shall need to be paid. Although the effect of the assignment is to transfer liability under the lease to the incoming tenant, the landlord may require the outgoing tenant to enter into an Authorised Guarantee Agreement (AGA). Under an AGA the outgoing tenant guarantees performance of the incoming tenant’s obligations under the lease and is therefore subject to continuing liability.
Alternatively, the tenant could grant an underlease of whole or part of the property to a new tenant if the lease permits. The original tenant becomes the undertenant’s immediate landlord. Head landlord’s consent to the grant of an underlease will be required and their costs paid. If the original tenant underlets the property they will remain liable under the provisions of the head lease, even though they may not be occupying any part of the property. They could still be liable for dilapidations when the lease expires.
Will there be any provisions in the lease enabling me to terminate early?
The tenant should check to ascertain whether the lease contains a break clause and, if so, whether it can be exercised. There will be certain conditions attached to the break which need to be strictly adhered to otherwise the break will fail. In the event of a successful break, the lease will be brought to an end, but the tenant may still face liability for dilapidations.
Is it possible to come to an agreement with the landlord?
Finally, the tenant could seek to negotiate a surrender with the landlord which shall bring the lease to an end. The landlord is not bound to agree a surrender and may require a payment of a premium in order to release the tenant from all liabilities.
Whilst some businesses may be looking to downsize or relocate in the current market, this will present unique opportunities to acquire commercial property. Young start-ups looking to take on their first premises and established businesses preparing to expand could benefit from more choice and perhaps increased negotiating power in the current market. It is important to take appropriate legal advice and consult a surveyor.
Associate solicitor, commercial property, Jacksons Law Firm