At least 12 months before the end of your lease, you should start thinking about what you would like to do next. This will give you plenty of time to do whatever is necessary, either for a smooth exit or to renew the lease. This section aims to help you consider the issues involved in:
Ending your lease
If you want to end your lease, the steps you need to take in order to comply with your obligations as a tenant will be set out in the lease. There are generally three ways of doing this - your options will depend on the exact wording of your lease:
In England or Wales, Section 117 of the Charities Act 2011 requires that charity trustees take advice in the event of disposing (which includes the assignment, subletting or surrender) of charity property so that best value is obtained for the premises. This advice needs to be given by a surveyor. For further guidance, please see the Disposal of Property and Good Practice sections of this website.
There is no equivalent requirement under Scottish law, but it might still be advisable to obtain professional advice.
Waiting for the end of the lease
When your lease comes to an end, you need to:
- vacate the premises by the last day
- hand over the keys
- remove absolutely everything of yours from the premises, leaving the landlord with vacant possession (if you leave anything there, the landlord could continue to charge you for rent and any costs associated with removing your goods)
- if you have a fully repairing and insuring lease, consider the landlord’s claim for dilapidations.
In England and Wales, all business premises have ‘security of tenure’ under the Landlord and Tenant Act 1954 (unless specifically excluded under that Act). This means that the tenant has the right to a new lease on basically the same terms when the lease expires. If your lease has ‘security of tenure’, and you wish to move out at the end of the lease, you do so as with any other lease. Follow this link for more tips on renewing a lease which has security of tenure.
In Scotland (subject to one small exception), tenants do not have security of tenure. To ensure that a lease comes to an end, even on the date specified in the lease, notice must be given to the landlord (or by the landlord to the tenant). Given that there are set timetables and forms for these notices it is advisable to instruct a solicitor to serve the notice for you. You should work on the basis of giving a solicitor two months within which to do this (unless your lease contains a longer provision). If you fail to serve the notice correctly, the lease will continue for a further year beyond the specified end date.
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Exercising a break clause to end the lease early
Your lease may contain one or more break clauses. These are options to terminate the lease before the end of the term.
If you wish to exercise a break clause, you will need to give notice to your landlord. Check your lease carefully to be clear what notice period you are required to give your landlord in order to break the lease. Give yourself plenty of time and don’t leave serving the notice until the last minute. Where a lease requires, for example, six months notice, you should assume that this means six whole months notice. Therefore, you would need to serve notice on the last day of January to meet a deadline any time during the month of August.
Serving notices is a very complex area and there are probably more people caught out by failing to comply with notice requirements than any other single leasehold trap. It is therefore cost effective to get a solicitor to serve notices.
Your lease may include conditions which must be met before you can exercise the break clause - for example a requirement to comply with all your covenants (obligations) under the lease to pay the rent and keep the premises in repair. If you fail to fulfil the conditions, you will no longer have the right to exercise the break clause. So before breaking the lease, you need to ensure that you are up to date with payments and repairing obligations (ideally, exercising a break clause should only be dependent on being up to date with rent payments). Follow this link to read more about dilapidations when exercising a break clause
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Surrendering (or renouncing) the lease
Surrendering the lease is when you reach a new agreement with your landlord to end the lease early. If you are looking to get out of a lease, this is an option you can propose to your landlord, although he will be under no obligation to agree.
The current state of the property market and your landlord’s plans for the property will determine whether he or she is prepared to consider surrendering the lease.
If your landlord is interested, you can then negotiate the basis of the surrender. There are three options:
- neither party pays anything
- you make a payment to the landlord (known as 'a premium')
- the landlord makes a payment to you (a 'reverse premium')
A surveyor will be able to give you an opinion of the state of the market, and will be able to advise whether you are likely to have to pay a premium or whether you can expect a payment from your landlord. If the market is quiet, then the landlord will find it hard to refill the property so will be likely to seek a payment from you to surrender the lease. If the market is strong, then the landlord could potentially re-let at a higher rent – and you would expect a payment to be made to you when you surrender it.
If you are considering surrendering your lease, you should also consider other options. If there is strong demand for property, then you may do better to assign or sublet the lease rather than surrender it. The key, as with any lease dealings, is to negotiate. If, for example, you have heard rumours that your landlord is interested in redeveloping the property, then you could be in a position to negotiate harder.
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