A lease is a legal document and if you default on the covenants of your lease or tenancy, your landlord will have remedies available and could have a claim against you for breach of contract.
However, you may be able to negotiate a way to be released from your agreement. This is particularly common in the current climate as many tenants/businesses find themselves unable to meet the rent and service charge requirements of their lease during the Covid-19 lockdown. Other tenants may want to escape their lease due to the premises no longer being needed or the premises being too small for an expanding business and wanting to move location. In some cases, landlords want tenants to surrender their lease early, although this is less common, particularly in the current climate.
If the tenant and landlord both agree that the lease will end early and the leasehold title will vest back in the landlord, then the lease will be surrendered.
The effect of Covid-19 on Tenant’s rights
The Government introduced legislation at the beginning of the Covid-19 pandemic that restricted a landlord’s ability to evict a tenant for non-payment of rent. Landlords must now give a minimum 3 months’ notice before they can take formal proceedings to forfeit the lease for non-payment of rent. This gives tenants a secure period of time to try and solve the problem and means they do not face sudden eviction if they are struggling.
To learn more about the changes to legislation during Covid-19 to protect tenants, and the effects of non-payment of rent then read our article here: Lease Forfeiture Moratorium under the Coronavirus Act 2020
However, if you know that you are not likely to be able to afford rent in the long-term and want to end the lease early then a Lease Surrender might be your way out.
Different ways to terminate a lease/tenancy early
- The starting point is to contact your landlord or letting agent as soon as you can to inform them of the situation and commence negotiations. You may be able to negotiate the following:
- a ‘rent-holiday’ or defer the rent for the short term.
- If necessary, you might be able to negotiate a complete surrender of the lease. This could involve:
- Negotiating a premium that the tenant has to pay to cover a proportion of, or all of, the rent due under the remaining term of the lease.
- An agreement in relation to the dilapidations or state of repair of the property
- Alternatively, if there will be a new tenant moving into the property then the current tenant who wants to leave may be able to negotiate a rent apportionment, meaning they will be refunded any future rent they have already paid.
- An agreement about closing down any registered titles at the Land Registry and delivering up original documents to the landlord.A solicitor can help negotiate terms of a surrender with the other side.
- A lease can be surrendered with no agreement in place. However, it is best practice to document the terms of the lease surrender in some way. As a tenant you will want to be certain that you have no continuing liability under the terms of the lease.
- An agreement for surrender can be produced. Once exchanged, this gives both parties the certainty that the lease will definitely end and documents when it will end, who bears the legal costs, and if any premium for the surrender will be payable by the tenant.
- A deed of surrender will then be produced which will be executed by both parties and once dated brings the tenancy to an immediate end.
- There is also a surrender by operation of law. This is where the landlord or tenant’s conduct is inconsistent with the continuation of the lease and their actions have the effect of ending the lease. For example, the landlord appears to extend the term of the lease; the tenant hands the keys back to the landlord and the landlord accepts them; or agreeing that the landlord will let the property to a third party. In this case it is good practice to document that the property has been handed back to the landlord and accepted by them, in the form of a letter from the landlord’s solicitor confirming the surrender.
The effect of a lease surrender
The leasehold estate will return to the landlord. The tenant will give vacant possession of the property and the tenant is usually released from all liabilities under the lease.
BHW are very experienced in negotiating lease surrenders on behalf of both tenants and landlords. If you want further information on the options available to you or if you need representation in trying to surrender a lease, then please get in touch with our Commercial Property department by calling 0116 289 7000.
Categorised in: Commercial Property, Covid-19Tags: Commercial Property, Coronavirus, Landlord, Leases, Tenant