Best option for ending our commercial lease early

[drew26]

Hi there
I would be very grateful for any advice regarding the situation we currently find ourselves in regarding a commercial lease. It's a bit of a complex situation, so I will start from the beginning!

We are about 8 months into a 10 year lease on a retail shop (we have a break option at the end of year 3). Due to a couple of reasons (firstly the shop simply not being as busy as we thought and a change in job for my partner meaning a potential re-location) we are looking to end the lease early.

We have approached the letting agent about this (they manage the complex on behalf of the landlords) and they have said the landlord would be willing to allow us to surrender the lease early by paying 6 months rent to cover re-letting the property and all the costs involved with this (approx 10k). This is something we have been considering doing in Jan, as our cash flow in the business should allow us to do this if absolutely necessary (we have another retail outlet also - this has been running for 4 years).

A couple of weeks ago, the tenants in the property next to us approached us about how long we had left on the lease and indicated they were interested in taking it on (as an additional shop, not moving from where they currently are). Following several conversations since, they are clearly very keen and likewise we are keen to go. They have 9 years also remaining on their lease with the same landlords and have a 6 month rent deposit laid down (both shops are similar size and rents).

We have an appointment with the letting agents soon, the outcome we obviously want is to surrender the lease without any obligations and not pay the 10k premium (We accept we may have to pay the landlords legal fees involved).

What we are trying to establish is whether we would have to be guarantor to the incoming tenants (in the lease it says "if reasonably required either that in the case of an assignment or sub-letting to a private limited liability company the directors thereof shall (inter alia) jointly and severally guarantee and covenant with the Landlord to make good to the Landlord all reasonable losses costs and expenses sustained by the Landlord through the failure of the company to observe and perform the Tenants covenants and the conditions contained herein or if reasonably required a rent deposit (in such form as the Landlord may reasonably require) of not more than 6 months of the annual occupational rent payable".

The business moving in is a partnership and not a limited Company.

If, worse case scenario, we did have to act as guarantor, would this be for the full period of the lease or can we argue it should just be to the break clause? Also, we read somewhere that we would only be liable for the first set of tenants and not any further ones, is this correct?

Is lease assignment the best option rather than sub-letting from our point of view?

Any help and advice would be extremely gratefully received!!

 

[kulture]

It is all open to negotiation. In the ideal world you would aim for the landlord to surrender your lease, the new tenant to get a new lease, and you walk away. I would try for this and throw in money (up to the full 6 months) to sweeten the deal. Get a solicitor involved and be nice, From the sound of it your landlord is likewise being nice.

Be aware that the landlord may not want the other shop to expand in this way.

 

[MOIC]

As above, negotiate a surrender of the lease with a contribution to any costs.

If you can achieve this with parting in the region of between 5k - 10k, I would look at this as a good result.

Leases, as you are discovering, can be a big liability, the sooner you get rid of it, the better.

The longer the situation is not resolved will cost you more money as well as circumstances possibly changing for the worse.

Strike a deal, fair to all sides and get a competent solicitor involved.

Good luck.

 

[Don Smith]

If you've got a new tennent lined up and the landlord agrees your absolute best solution is to end the lease "by operation of law". Its cheap to do, about £150 and releases you from the lease, and all commitments therein 100%, you just hand the keys back and job done. The new tennent then simply negotiates a new lease with the landlord. With your prospective tennent being known to the landlord, providing the are good tennents, this should be beneficial to all three of you.

 

[Deleted member 59730]

Why not sell the lease to your Neighbour. That way you make money instead of losing it.

 

[drew26]

Thanks so much to all of you for the advice, it really is very helpful to us.

In terms of selling the lease to our neighbour, I think we have been a little too keen in our conversations with them and they realise we want out - so I feel we haven lost any sort of bargaining power in the negotiation (a lesson for us to learn!)

We have the meeting with the agents on Wednesday, hopefully it will be positive and we come out having agreed a resolution in principal. We were already leaning towards negotiating a lease surrender of some kind, rather than assigning or subletting, from the advice above this has cemented our thoughts.

 

[Stu Bailey]

You're dependent upon the Landlord and he may be willing to allow you to surrender the lease early. The other tenant may get you to pay for his legal costs for that.
He may take a tough stance and insist you personally guarantee the incoming tenant. This is always risky because you are not in control. If that is the case you could consider granting a sub lease and then terminating your lease when the break date comes along. Although I will doubt the incoming tenant will be comfortable with that. PM if you need further help.

Best wishes Stuart Bailey solicitor

 

[Supercoach]

Although you have weakened your negotiating position I believe this is the position to adopt.
1. In terms of being a guarantor the lease says, "If reasonably required ..." Because the incoming tenant is already a tenant of the landlord and his payment history etc. is already known it would not be reasonable for you to be needed as a guarantor! Remember, the landlord will be delighted to have additional premises let out to people he knows are reliable, good payers etc.
Frankly, if the landlord does not accept the tenant's track record as being a good risk you definitely should not either!
2. Assuming the landlord's legals will need to be met (this is by no means always the case) you should argue that it be split 50/50 between you and the new tenant. The new tenant would have to pay 100% of the cost in normal situations so this is a saving for them.
3. The incoming tenant needs you to move out in order to take the opportunity - he is not doing this out of the goodness of his heart. The landlord wants a long term tenant who he knows is good for the rent. The agent wants a new tenant for a new deal.
In short, they all gain and you hold the key to the deal - you must stop them from thinking you are desperate to get out so hold firm on agreeing to transfer provided you will not be guarantor and paying 50% of the legals.
If you hold absolutely firm on the above I am certain that the vested interests of the other parties will ensure the deal is done.
Good luck.