What do tenants need to consider when coming to the end of a commercial lease?
Commercial leases come to an end for all sorts of reasons – sometimes they die a natural death after the term has expired and the tenant wishes to move on; other times it’s a more abrupt ending. Writing your exit strategy into your business plan will help you cope with every eventuality. Here are our suggestions for things you need to think about it when the time is right.
The type of lease
It’s important to check the lease before you sign it, to establish which type of lease you are committing to. A Protected Lease means that you have protection under the Landlord and Tenant Act 1954. This means that you have security of tenure (permission to stay) after the end date has passed, with agreement from both parties, until one of you decides to break the lease. In this case, a reasonable period of notice (most experts say that between 6 and 8 months is acceptable) must be given by either side.
An Excluded Lease does not offer the protection of The 1954 Act meaning that the tenant does not have security and can be vulnerable to short-notice lease termination.
It’s in your own best interests, therefore, to find out what type of lease you’re signing and make plans for the end of it – however long away that is.
Check your break options!
It’s important to understand what you have to do to make your break legal. If you don’t adhere to these, to the letter, your break notice may be invalid and you may find yourself still liable for paying rent, VAT, service charges etc after you leave the premises for the last time. So make sure that you are up to date with the rent, that you have paid any VAT or service charges that are due right up until the day your lease breaks.
Your lease may also advise you that you must give vacant possession by the break date, so if you’ve sublet your commercial premises or you wish to pass the lease on to someone else, you must seek legal advice about your situation and discuss it with the landlord. You may be required to act as a guarantor in the case of passing on.
Check your covenants!
Your lease will probably require you to repair and reinstate the property to the state in which you found it. It is your responsibility to do so before your lease expires as you have no legal right to return to the property once it has. Again, common sense should tell you that proper planning must be made for such repairs and reinstatements, a timescale outlined and a budget put aside to deal with any that must be made. If you’ve made alterations to the premises (with your landlord’s permission, of course!), they can legally require you to reinstate the building to how it was before to enable them to offer a blank canvass to their next tenant.
When a lease comes to an end and a tenant moves on, it can be an easy thing or a hard one, depending on how you plan and communicate with your landlord. Don’t leave it all to the last minute and make sure you start the negotiations early to avoid any costly litigation. If you need advice about your course of action when your lease is coming to an end, contact a member of our team.
Written by: Steven Jones on Wednesday 05/10/2016