Article for Harrogate Advertiser

4 September 2008

By Susan Poole, Partner, Commercial Property

As the recession starts to bite and prices continue to rise, businesses have to look at ways of reducing overheads in order to remain competitive.

A major overhead of most businesses is their premises, which are usually leased for fixed terms, typically three, five or ten years in length.

As a result, many of the recent calls that we have received in the Commercial Property Department of Barber Titleys are from clients seeking advice as to how to get out of business leases, negotiated and entered into a number of years earlier when the market was buoyant and rents were higher.

For most of these clients there are usually several options available to them depending upon their circumstances and requirements.

So what can business tenants do if they wish to “ditch and switch” their lease?

If the aim is to end the lease as quickly and cost effectively as possible then the use of a tenant’s break clause is often the best option. A tenant’s break clause allows the tenant to terminate the lease early either on one or more specified dates or at any time during the term of the lease on a rolling basis.

These clauses usually have conditions attached to them, which must be complied with if the break is to be successful. Conditions typically include that the tenant is up to date with payment of the main rent and is not in breach of its repairing obligations.

To take advantage of the break clause, notice must be served on the landlord as provided in the lease, and all time limits must be strictly complied with.

However, not all leases contain break clauses.

A second way to dispose of the lease would be to assign (i.e. sell) it to a new tenant, who would take on the remainder of the lease term. Instead of selling the lease the tenant may prefer to grant a sublease of either the whole or part of the premises, especially where the tenant anticipates that it may require the premises back at a future stage.

In these circumstances the lease will contain provisions setting out whether either of these alternatives is permitted and on what basis.

A further option to consider is whether the landlord would be willing to accept a surrender of the lease. While it is at the discretion of the landlord, there may be circumstances where this would be attractive to them, such as where they require the premises for redevelopment or their own use.

Even if a business tenant decides to stick it out until the end of the term, in the case of “protected” business leases - those where the tenant’s rights to a new lease have not been specifically excluded - it is still advisable for the tenant to give notice if their intention is to leave the premises at the end of the fixed lease term.

At Barber Titleys we can provide advice on a full range of these issues, helping clients to plan ahead and get a new lease of life!