With huge numbers of people forced to work from home due to social distancing measures, COVID-19 has changed the way we work. Businesses with IT systems that have been able to support remote working on a scale that will not previously have been envisaged may be considering a permanent move away from office-based working.
In this article, we suggest ways in which business tenants can offload office space that is now surplus to requirements before their lease comes to an end.
- Surrender – businesses could seek to negotiate a surrender of their lease with their landlord in order to end the lease before the term expires. However, as landlords are not obliged to agree to a surrender, they could require the business to pay a penalty in return for accepting a surrender. Landlords could also refuse to agree to a surrender if they are concerned that they will be unable to find a new tenant for the premises or if they do not require the premises for another reason (e.g. redevelopment).
- Break rights – businesses should check their lease to see if they contain a right to terminate the lease during the term. If the lease does contain a break right, then the business should ensure that it is exercised strictly in accordance with the terms of the lease and that all break conditions are satisfied. Businesses should consider instructing solicitors to exercise the break right on their behalf.
- Assignment – if a landlord is not willing to accept a surrender, businesses could assign (or transfer) the remainder of the term of the lease to another business. Following an assignment, a tenant would usually cease to be liable for any of the obligations contained in the lease except to the extent that they have agreed to guarantee the performance of the new tenant’s obligations under the lease. Tenants will usually be required to obtain their landlord’s consent prior to assigning their lease.
- Subletting – businesses looking for a more temporary solution while they continue to trial the viability of home working could instead sublet their premises to another business. Subtenants should be chosen carefully to ensure that they can pay the rent and look after the premises as the business will remain liable to its own landlord for the performance of the obligations contained in the lease. Subleases can be granted for virtually the remainder of the term of the lease or for shorter periods, however, in most cases, the landlord’s consent will be required.
- Sharing – an alternative to subletting would be to share premises with another business. It is common for business leases to allow group companies to share the same premises without requiring the landlord’s consent as long as a tenancy is not created. However, the landlord’s consent is usually required to share premises with an unconnected party.
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.