The Departure Lounge – Planning A Lease Exit?

Earlier this month, Real Estate Partner Emily Carey discussed whether a tenant’s use of its commercial space might qualify as a protected business tenancy. What Kind of Lease Do I Have and Why Does It Matter?

With many commercial tenants reassessing the type of space their business needs, Real Estate Partner Nicola Wood examines three ways a commercial tenant might end a protected tenancy (other than by exercising a break clause—stay tuned for our next article on break clauses). Nicola offers practical tips and emphasises the importance of seeking expert professional advice early in the process.

While this article is written from the perspective of a commercial tenant, our Real Estate team advises both business tenants and investment landlords across various sectors, including offices, retail, and logistics.

Early Surrender

If your business premises are no longer suitable, your landlord may agree (but is not obliged) to terminate your lease early. Any agreement to surrender the lease will likely be subject to conditions set by the landlord, including a financial payment. It is essential to seek expert advice regarding these payments, as they may have tax implications.

Early surrender is a matter of negotiation. Both parties should consider not only the rent due for the remainder of the lease but also how the space will be returned. This includes whether the tenant must undo alterations or address repairs and decoration required under the lease (known as ‘dilapidations’). Dilapidations may be resolved either by completing the necessary works or by making a payment in lieu.

Ideally, the surrender should be formalised in a deed of surrender prepared by a lawyer.

Leaving the Premises at the End of the Term

Your business can vacate the premises on or before the last day of the term granted. It is best practice to notify your landlord of your intention to leave by serving formal notice at least 3 months before the end of the term (more on notices below).

Ensure you know the exact end date of the term. Remove all business belongings and confirm how the space must be returned to the landlord. These requirements, known as ‘yielding up’ obligations, are often scattered throughout the lease and supplemental documents.

Giving Notice after the End of the Term

If the lease term has already expired, a business tenant must serve at least three months’ formal notice to the landlord, stating their intention to vacate.

The notice must comply with the statutory requirements of the Landlord and Tenant Act 1954, as well as the contractual notice provisions specified in the lease.

As with early surrender or end-of-term exits, the tenant’s yielding up obligations and potential dilapidations liabilities must be addressed and, where possible, agreed upon with the landlord or their surveyor in advance.

Do Not Forget

If you paid a rent deposit when the lease began, remember to claim it back. Ensure the landlord provides a statement showing any interest accrued.

Ending a commercial lease is rarely straightforward. Both landlords and tenants should seek independent legal advice at an early stage. Engaging a surveyor familiar with dilapidations claims and a tax adviser may also be necessary.

As with early surrender or end-of-term exits, the tenant’s yielding up obligations and potential dilapidations liabilities must be addressed and, where possible, agreed upon with the landlord or their surveyor in advance.

To discuss the above, or any commercial leasing matter, please contact a member of our Real Estate or Tax teams, including:

nicolawood@bexleybeaumont.com  |  07359 709259
emilycarey@bexleybeaumont.com  |  07300 927480