As a commercial tenant, you may wish to leave your lease early for a number of reasons. Perhaps your business has outgrown the property and you wish to upgrade, or maybe you’re looking at downsizing.
Either way, you have a few options to terminate the lease early.
Can a tenant end a commercial lease early?
There are four ways that a tenant can end a lease. These are:
- Through a break clause
- Via lease surrender
- Via lease assignment
- Via subletting
Though a tenant can end a lease early, there are certain requirements for each of the above methods which must be fulfilled. More on this below.
What is a break clause in a commercial lease?
A break clause is a term written into the lease which gives the tenant and/or the landlord the power to terminate the lease before it would usually end.
There are two different types of break clause, the first is a fixed break clause and the second is a rolling break clause. Read on to find out the difference between the two.
Not all leases will have a break clause written into them.
How does a break clause work?
Fixed break clauses
A fixed break clause will give either party the option to terminate the lease on a specific date. By doing this you are effectively giving up your right to the lease.
In order to trigger a fixed break clause, you will have to give the required notice to the landlord before the break date. For example, a written notice 6 months before the break date. Once notice has been given, the lease will end on the break date.
If you do not give the required notice for the break date, you will have to wait until the next break date in the lease (if there is one) to terminate your lease.
Rolling break clauses
A rolling break clause works slightly differently to a fixed one. A rolling break clause provides the option to end the lease, however, instead of doing this on a specific date, you can only do this after a certain period.
For example, if you have a 10-year lease which has a 3-year rolling break option, you can terminate the lease any time after the 3 years have passed, as long as you give appropriate notice.
What is lease surrender?
Surrendering a lease is when a tenant effectively gives up their right to a lease by negotiating lease termination with their landlord. Both the tenant and landlord must agree on the terms of the lease surrender, otherwise it cannot take place.
Usually a landlord will be unwilling to surrender a lease, as they would lose rental income, however in some circumstances it can be beneficial to them.
For example, there could be a new tenant who is willing to pay a higher rent, the landlord may want to occupy the property themselves, or they may wish to sell the entire freehold.
In the full article, Ben looks at lease surrender in further detail and outlines how lease assignment and subletting can be used to end a lease early. Click here to read it.