If you're considering the steps involved in ending a commercial lease or transferring it to another party, you've come to the right place.
Various factors may prompt you to transfer your commercial lease. It could be that your business is expanding, and you need a larger space to accommodate growth or you're looking to terminate your existing Lease Agreement due to a closure of your business.
This article aims to shed light on commercial leases, providing insights into the process of transferring or terminating these types of agreements.
Can a commercial lease be transferred?
One option you have as a tenant if you want to end your commercial lease early is assigning or transferring a commercial lease to someone else. This involves sub-letting the remainder of the lease to a third party. Transferring a commercial lease to someone else might be useful for you if your lease does not have a break clause.
You must check through the lease, in case subletting or assigning a commercial lease is restricted before starting the commercial lease transfer. You will also need to talk to your landlord to get permission to transfer or terminate the contract early before you start the process of sub-letting.
The landlord will typically request a reference from the tenant for the third party, and the landlord also has the power to refuse consent if the third party cannot provide a reference. However, the landlord owes a duty to the tenant to give consent unless it's reasonable not to.
How do I transfer a commercial lease to someone else?
To transfer a commercial lease to someone else, you’ll likely need to obtain the landlord’s permission. Failing this, you might be liable to face financial penalties. An assignment of a commercial lease is not always permitted by the landlord. They may refuse on the grounds of the protection of the property if the new tenant has not provided adequate references, or if the landlord is concerned about finances.
It's recommended that you seek legal advice before taking any action towards transferring or assigning a commercial lease because if the property is assigned to someone else without your consent, you may still be liable for rent and breaching a contract.
If you’ve obtained permission from the landlord to transfer the commercial lease, you will receive a document - the Licence to Assign - from the landlord’s solicitor. If your landlord refuses to consent, you can appeal to a court if you deem the reasons for this refusal unreasonable, but this can be very expensive.
Can I get out of a commercial lease?
As detailed above, speaking with the landlord and reviewing the terms and conditions of the lease, as well as providing a third party who is ready to accept the transfer of the lease, will assist in determining how a tenant can get out of the commercial lease. These are some strategies for terminating a commercial lease:
- A legal break in the lease (break clause), allows both landlord and tenant to terminate the lease after a period that has been laid out in the contract (a notice period may be required to meet the clause requirements)
- The landlord may be open to negotiating a lease exit with the tenant (this could mean the tenant has to pay to end the lease)
- Paying a fee for an early exit, such as for professional or legal advice from solicitors for the tenant and the landlord. This may also involve proposing a sum to terminate the lease, perhaps by demonstrating to the landlord that they would be better accepting the payment as the business cannot keep up with the rent
- The tenant may be able to assign the lease to someone else, a third party who meets the landlord's requirements.
- Subletting a lease may be a good way to terminate a commercial lease, as rent from the new tenant will cover the original tenant’s financial obligations (the original tenant would take on more responsibility in managing the property and helping out the sub-tenant if they have concerns)
Get legal assistance from LawBite
LawBite’s mission is to democratise how businesses get the expert law they need, whilst making it easier to access, clearer to understand and much more affordable. We’ll connect you with our top lawyers to help you solve any problems you may have regarding your business, including what you need to know about taking on new commercial premises, your existing lease, a rent review, a Lease Agreement, assigning or transferring a commercial lease to someone else or any other property issues you have.
Commercial leasing requires careful consideration because it's often long and complex. There are compelling obligations and responsibilities for tenants, landlords and guarantors; as such, all parties should ensure that they are safeguarded.
We hope this blog post has answered your questions about how commercial leases can be terminated and transferred, and how this can relate to your business. If you have any further questions you book a free 15 minute consultation with one of our expert lawyers or call us on 020 3808 8314.
