LEGAL
Platinum Jubilee
Ben Price
Tom Watkins
In this article we look at options for moving on from your current premises or sharing your space
Commercial property – successfully managing your real estate The global pandemic has undoubtedly had an impact on commercial leasehold premises of all kinds and in all sectors. We have seen some businesses accelerating their plans for their real estate whilst for others their entire premises strategy will have been re-written. This could mean a business reducing their real estate portfolio, co-locating their operations or taking more space. Any of these objectives will involve a commercial tenant carefully considering its exit options. Landlords too will need to be ready to react to tenant requests and understand how best they can protect their investment. Most exit options available require landlord consent or agreement. Understanding what the landlord can and cannot ask for will be key. There are a variety of points to consider, and not all of the options will be available to all occupiers but understanding them is key to helping businesses formulate their next steps. If you are looking to reduce or increase the property footprint of your business or move to new premises, you will find the key points below. Typically, tenants will have one of four options to consider: n exercising a break clause; n assigning their lease to another tenant; n underletting; ns urrendering the lease.
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EXERCISING A BREAK CLAUSE
This is usually the only way a tenant can unilaterally terminate their lease without the consent or agreement of the landlord. A tenant should check its lease carefully to see if they have a break date in the near future. It is important to know how much prior notice needs to be given to the landlord to exercise the break; six months is common, but it can be longer. Tenants should be wary of any conditions attached to a break right, these are very strictly construed – not complying with a condition can mean a tenant’s break is not valid, with the result that the tenant has to stay in the premises paying the rent until the end of the lease (or the next break date). From the landlord’s perspective, they should carefully review the lease to understand whether a break notice has been served correctly and what the break conditions are. This could be the difference between having tenanted premises and an empty unit.
ASSIGNING A LEASE
If the tenant can find someone to take on the lease, then they will almost certainly need their landlord’s prior written consent to the assignment. The lease will normally say that the landlord cannot unreasonably withhold or delay giving its consent, will set out the circumstances when consent can be withheld and will list the conditions the landlord can impose on the assignment.
It is important for landlords to understand the conditions, for example they may have the right to ask for a guarantor or a rent deposit. It will be crucial for a landlord to carry out referencing on the incoming tenant and a review of its accounts. This will help the landlord form a view whether the tenant will be able to pay the rent and help protect the value of the landlord’s investment.
There are a variety ❛❛ of points to consider,
and not all of the options will be available to all occupiers but understanding them is key to helping businesses formulate their next steps ❜❜
