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Exit Strategy: how to terminate a Rental Agreement early
- AuthorMignonette Ellis
In certain circumstances, businesses may find they have premises or parts of premises that are surplus to requirements. Having entered into a contractually binding rental agreement, it may not always be a straight forward process to end that relationship earlier than originally planned.
Here are some option to consider when trying to extract yourself from a rental contract.
Break clause -
If your lease has a break clause, you may be able to bring the lease to an end before the contractual end date. The lease will state the date on which you can bring the lease to an end exercising the break clause and may include more than one break date. You will need to serve a break notice on the Landlord some months in advance of the break date.
The break clause is very likely to include conditions which must be met to bring the lease to an end. A common condition is that the rent must be paid up to date. The rent can include insurance rent, service charge and other costs regarded as rent under the lease. You will need to check the lease terms carefully to establish what is considered as rent. Other requirements may require you to give vacant possession of the property. If you have breached any of the tenant covenants in the lease, you may not be able to use the break option.
The break clause will need to be considered carefully by a legal adviser to ensure the notice is served correctly and all conditions have been met, otherwise, the break notice could be invalid.
Negotiate a surrender of the lease –
If the lease does not contain a break clause, the break date has passed or is too far in the future; the Landlord may agree to surrender the lease. The Landlord may want the property back or may wish to grant a new lease to you on terms that you are both agreeable to. The Landlord is under no obligation to agree to the surrender.
Transfer the lease –
You may be permitted under the lease to assign or sublet the property to a third party. There are usually conditions that must be met, and the Landlord may not be obliged to agree to the assignment or to sublet of the lease. If the Landlord does agree, you will not be completely released from the obligations in the lease. You may be required to provide an authorised guarantee agreement whereby you guarantee the compliance of the assignee. In the case of a sub-tenancy, you remain as the Landlord’s direct tenant and must comply with the lease.