How to end a commercial lease early

Yes, you can sometimes end a commercial lease earlier than the agreed date. There are four main methods in which a commercial lease can be brought to an end, including, through the use of a break clause, surrender, assignment and subletting.

Break clause

Commercial leases will often contain break clauses; they allow commercial tenants, landlords or both to end a lease early, provided an agreed set of conditions are complied with. They usually occur at agreed fixed points in time, for example twelve months into a two-year lease. 

There are two common types of break clauses;

Fixed-date break clause: This will end the lease on a specified day.

Rolling break clause: This allows for the notice to be served at any time, providing additional flexibility. If a party fails to correctly exercise the break option, they are able to serve a further break notice in another attempt to exercise the break option.

The break clause will contain specific conditions which must be met in order to exercise the break. It may specify the period of notice that you are required to give the other party and it is a common condition that rent is paid up to the date on or before the break date. Therefore, it is essential to thoroughly check the lease requirements to ensure that you have satisfied the obligations necessary to exercise the break clause. It is important to ensure that notice is served strictly in accordance with the lease, break notices should be served by a suitably qualified legal professional. 

Lease surrender

A lease surrender is an agreement between the landlord and tenant to end the commercial lease early, the landlord then takes back control of the property. When the lease has been surrendered, the tenants’ liabilities to pay future rent and comply with the lease terms cease. 

Where the landlord and tenant conduct themselves in a manner that is inconsistent with the continuation of the lease, the surrender will occur automatically by the operation of law. This may be satisfied where the landlord takes back control of the property or accepts rent from an undertenant. This would be inconsistent with the lease continuing and may be surrendered through the operation of law. 

A surrender may be completed by a written deed, this is an express declaration made by both parties. Where the lease has been registered and the landlord has a mortgage, consent to the surrender must be sought from the mortgagee. The date of the deed confirms the end of the lease, often parties will agree to surrender the lease at a later date, this may be achieved by entering into an agreement for surrender. This will enable the tenant to sell stock and prepare for the surrender. 

A landlord has no obligation to accept the surrender of a lease. A lease surrender premium is an additional cost which may be agreed by the parties. It is important to budget for this sum if attempting to agree to a surrender. 

Lease assignment

Assignment of a commercial lease involves the transferring of lease obligations to a new tenant, known as the assignee. This enables the tenant to leave the property before the end of the lease term. 

The outgoing tenant is often responsible for finding a replacement tenant and the landlord’s consent is needed before completing the assignment in accordance with the lease. The landlord must respond to the tenants’ request without unreasonable delay and should not unreasonably refuse to provide consent. 

Once the landlord has provided consent for the assignment of lease, the landlord and assignee will enter into a deed of assignment. This document transfers the original lease to the new tenant. This has the effect of ending the original tenants’ obligations under the lease as these are taken over by the new tenant. 

Subletting

A tenant with the landlord’s consent may arrange for all or only part of the commercial premises to be let to a third party, this is known as subletting. There are benefits for the tenant, such as sharing the cost of rent.

The lease agreement remains in place and the tenant remains responsible for the obligations in the lease. Permission needs to be obtained from the landlord to sublet the original lease. The landlord has no contract with the subtenant. If your subtenant is in breach of the lease, your landlord may pursue you for this. It is therefore important to ensure that the sublease reflects the terms and obligations of the head lease to cover all liabilities.  You are not permitted to give any rights to the new tenant which extend beyond your own rights; for example, you cannot give a longer lease.