One of the key steps in commercial property conveyancing is to examine the commercial lease, including each of its clauses. If you are inheriting a commercial property with existing tenants, you will also be inheriting the lease agreement. This post aims to provide information for both commercial property owners and commercial tenants on whether their lease agreement can be broken early, along with relevant property law advice.
What is a break clause?
One of the most common ways to end a commercial lease early is to utilise the break clause written into the contract(if one is present). A break clause in a commercial property lease gives provision for both the landlord and tenant to end the lease agreement prematurely. Break clauses are often subject to certain conditions and parameters that must be met, including the notice period.
- Fixed break clauses: termination of the lease must be done on a specified date (break date) with appropriate notice. If proper notice can’t be given, you will have to wait until the next break date (if there is one).
- Rolling break clauses: this clause allows for the lease to be ended only after a certain period of time has elapsed. For example, a 10 year commercial lease might have the option for a rolling break after 4 years.
How to break a commercial lease early
Although commercial leases are legally binding contracts, there can be circumstances where one party wants to bring an early end to the agreement. Whatever the reason for wanting to break the lease before the agreed end date, there are many ways to go about it.
Break clause
As mentioned previously, break clauses are the most straightforward way to bring a property lease to an early end. A commercial property lease will usually continue until its end date unless it includes a break clause. This line in the lease that allows the landlord, tenant or both to end a lease early without facing a penalty. Your commercial property solicitor will make sure to check for any lease break clauses during the conveyancing process, as this could influence your purchase decision.
Lease surrender
Ending a commercial lease early, sometimes called ‘surrendering the lease’, can be done with permission from the landlord. You must have legal documents together to prove that this has been agreed between the two parties. Surrendering a lease can be done by written deed, or through conduct on the part of the landlord and tenant.
Lease assignment
Tenants will need the landlord’s permission to pass the lease onto someone else (‘assigning the lease’). Whether you can do this at all will depend on the details of your lease. You may also be asked to provide a guarantee for the new leaseholder.
Subletting commercial property
Commercial tenants might have the right to create another lease below their own which sublets all or part of the original lease. This usually requires consent from the landlord. The original lease will likely contain terms which set out how tenants can go about subletting the property.
Friendly business property law support
The team at Toomey Legal are highly experienced in reviewing the terms of a commercial lease, looking for key provisions which will impact you down the line. Ending a lease before its specified lifespan can be essential for granting flexibility for business operations. Contact us if you have any questions about what to look out for in commercial property conveyancing.