How to move out of leased business premises
The basis upon which a business occupies its premises is often as a tenant under the terms of a business lease. When the premises becomes surplus to requirements, the first step is to consult the terms of the lease to determine the best method of moving out. Some of the options that may be available are briefly discussed below.
Contractual Term – It may be that the end of the term of the lease is coming up, and it is worth waiting for it to expire. This may be the simplest means of leaving the premises, but often the contractual term is too far in the future to be a viable option.
Break Right – This may be given under the lease in favour of either the tenant or landlord, and provides a right to terminate the lease before the end of the contractual term. The lease will need to be checked to see if there is a conveniently placed break in favour of the tenant. In order to properly exercise the break right, notice must be given within the time limits and having satisfied any other conditions set out in the lease. Often material compliance with all tenant covenants is a pre-condition of a break, and any proposed break will not be effective if such conditions are not satisfied. This means the tenant will continue to be liable under the terms of the lease.
Assignment – Assignment is generally permitted with the landlord’s consent. Such consent must not be unreasonably withheld by the Landlord. Whilst an assignment transfers the tenant’s future lease obligations to a third party, it is not uncommon for the lease to require the outgoing tenant to guarantee the provisions of the lease going forward. This creates an ongoing liability, and care needs to be taken to ensure the new tenant is going to be able to pay the rent, and otherwise comply with the lease.
Sub-Lease – Any sublease must be permitted under the terms of the lease. In some cases it will be possible to sub-let part of the premises, which may provide a preferable alternative to moving out of the premises altogether. On the grant of a sub-lease the original lease remains in place, with the existing tenant remaining directly liable to the landlord.
In all cases it is important that the landlord is consulted at an early stage so that any issues can be dealt with in a timely manner. Often these will relate to the removal of any alterations to the premises undertaken by the tenant, and dealing with any items of disrepair.