Tuesday, 2 December 2014

How can a tenant get out of a Commercial Lease?

Once you have entered into a lease of commercial premises, you are contractually bound to pay rent and outgoings, keep the premises in repair and comply with the other lease obligations until the end of the lease term. This is the case even if you move out and have no continuing use for the premises. So what can a tenant do in order to get out of the lease obligations?

The first thing is to consider the detailed terms of the lease, in particular any early break rights and those relating to assignment and subletting. Assuming no early break rights, the options available include:

- a negotiated surrender of the lease;
- assignment; or
- subletting.

A surrender is best if it can be achieved at manageable expense. The landlord may be happy to take the premises back to use himself or to relet but the tenant is still likely to have to pay a premium. Otherwise, the tenant needs to find someone else to take the premises over. The two main ways to do this are by assignment or by subletting.


This is where a new tenant (the assignee) takes over the lease.

Typically, assignment requires landlord consent, not to be unreasonably withheld. The landlord is entitled to be satisfied that the assignee is suitable and able to pay the rent and may impose conditions to his consent. These may include a rent deposit being provided or personal guarantees (where the lease is assigned to a company).

Of most significance to the outgoing tenant, is the usual requirement of an Authorised Guarantee Agreement. This is a guarantee by the outgoing tenant to the landlord that the assignee will pay the rent and comply with the lease obligations. Although the assignee will be primarily liable to the landlord, the tenant will still have fall back liability until either the assignee has in turn assigned the lease to another new tenant or the lease term has ended.

Subletting (also known as Underletting)

Subletting is where a tenant grants a new, subsidiary lease to another tenant (sub-tenant). The original (head) lease remains in force and the tenant will have the same liability to pay rent and carry out repairs, etc but will in turn collect rent from the subtenant and (depending on the terms) be able, in effect, to pass on the other lease obligations.

Subletting is sometimes prohibited outright, even if assignment is not and will nearly always be subject again to landlord consent (not to be unreasonably withheld). Again, the landlord will have various requirements, particularly in relation to the sublease terms, which usually have to reflect the existing lease, and the landlord will expect its legal costs to be paid.