Your rent is too high, and there's a great opportunity to move to better premises - but you need to get out of your existing lease. Know the barriers and how to overcome them so you're ready to move when you need to
What are your options for getting out of a lease?
Options depend on your lease. You may be able to:
- terminate the lease under a break clause;
- negotiate termination with the landlord;
- assign the lease - ie sell it to a new tenant;
- sublet the premises, or part of them.
Terminating a lease under a break clause
If you can terminate at a specified point because there is a 'break clause' in your lease, you may have no continuing liabilities to the landlord. Check the notice you have to give, and that you have complied with conditions in the lease, such as keeping the premises in repair (breaches may lose you the right to terminate).
Terminating a lease when there is no break clause
If you can negotiate termination, you may have no ongoing liabilities to your landlord. In return you may have to pay a fee for terminating, any professional fees incurred, and the costs of repairs and redecoration.
Assigning a lease
Finding a new tenant to take over your lease - someone to 'assign' it to - is usually the best way of realising any value it has. But leases for fewer than three years often prohibit assignment, or you may need your landlord's consent (which usually can't be unreasonably withheld). There may also be restrictions on use, which will limit the types of business you can assign to.
If you can assign, you'll usually be legally liable for all future payments owed by the next tenants, or have to guarantee some or all of their payments. The landlord may try to negotiate other payments from you that you may be able to pass onto, or share, with the new tenant.
Assignment negotiations can cost more and take longer than negotiations to terminate. You will have to:
- find the new tenant (and may have to pay an agent to help);
- negotiate with both the new tenant (for example: who will pay the landlord's professional fees? will the new tenant pay you a premium, or vice versa?) and the landlord.
If your lease has less than two years to run, it's probably better to negotiate to terminate the lease, to avoid the costs and risks of assigning it.
Rental from subletting could cover part or all of your rent and leave you free to move, but subletting won't get you out of the lease - you retain all your liabilities as a tenant, and you will have the additional burden of managing your sub--tenant.
Subletting may not even be allowed - check the lease for restrictions on subletting - or you may need the landlord's consent.
Strengthen your hand
Whether negotiating an assignment or termination with the landlord, put yourself in the landlord's shoes:
- Is the market strong? The more potential reliable new tenants out there, the more reasonable the landlord is likely to be with you.
- Does the landlord have cash flow problems? If so, the landlord may want a quick agreement.
- Has the landlord breached the lease? Use that in your negotiations.
You need judgement, experience and a good knowledge of the local market, so use both your own and your adviser's negotiating skills. Don't give your position away. If the landlord knows you are desperate to get out of the lease, you won't have the upper hand.
If in doubt, take legal advice.