Not every business is a success and sometimes business owners need to make the difficult decision to cut their losses. As many businesses in the hospitality sector operate via a lease with the owner of the premises from which they trade, they may find that they are tied into the lease for a number of years and have no option but to continue to trading. However, there may be a way out. This article explores the methods for ending a lease early.
Termination Clause
It is quite common for leases to include a termination clause allowing the tenant to end the lease early. This is particularly so with long leases of perhaps, 10, 15 or 20 years duration. There may be one or more break clauses during the term of the lease allowing the tenant to terminate after a specific number of years. The termination will usually be dependent on the tenant having paid all rents, having not breached the terms of the lease and having given the required period of notice to the landlord. Normally time is of the essence for these break dates meaning if you fail to meet the date, even by a day, then it is invalid and you are stuck in the lease.
Surrender Deed
A surrender deed is an agreement with your landlord to end your lease early, even where your lease gives you no contractual right to do so. Such an agreement obviously relies on the landlord’s consent and willingness to do so. However, they may sweeten this for themselves by requiring payment of a surrender premium which is a lump sum paid to the landlord for the privilege of ending the lease early and which, in the landlord’s view, will somewhat make up for the rent they will be missing out on.
Other alternatives
Short of terminating your lease, you may be able to pass your lease on to someone else. This is called an assignment and means that another party will step into your shoes and take over the lease as if they were the original party to it. Virtually all leases permit this to be done, subject to landlord consent.
Alternatively you wish to sub-let your lease. This means that you hand down the lease to another party who occupy the property and pay you a rent for doing so. However, you will still be responsible to the landlord for payment of your rent and compliance with your obligations under the lease. Again, a sub-lease will require landlord consent.
Finally, if you hold the lease via a tenant company and you sell your shareholding in the company to another party, you will exit the company and thus the lease and the new owners of the company will continue with the lease. This is sometimes useful when a landlord does not consent to an assignment or sub-lease as usually the landlord cannot stop you from selling the company itself.
To discuss any legal matter, please contact O’Reilly Stewart on 028 90 321 000.