Break Clause in Commercial Lease - too late

[Caboose]

We've screwed up.

We informed our landlord that we would like to execute a break clause in our lease (5 year contract with a 3-year break). As per our lease agreement, we need to provide the landlord at least 3 months notice on the break. We informed them 7 days too late to conform to that requirement (i.e. we've given them 2 months and 3 weeks notice). The person this fell to was out-of-action last week, when they were supposed to do this.

Landlord is holding this against us, saying that we are too late, and are liable for the final 2 years. Note, we'd discussed this with the landlord several months ago, that we were looking to get out of the lease sooner as we no longer had enough space to operate effectively. The landlord even arranged viewings for prospective tenants. But we did not formally request it until today (too late).

Where do we stand on this?

 

[kulture]

Unfortunately the landlord is correct. If you miss the date of the break clause, then you are liable for the remainder of the lease.

That said, what is your position? Is the lease in a company name or your name? If it is a to a company, did you sign a personal guarantee?

If a lease is just to a company then you can in theory close the company and walk away. It is not that simple.

If it is in your name then you could in theory go bankrupt. Again not simple.

It is difficult for a landlord to extract rent if you have no money. It would be better for them if they could let to someone who has money.

You cannot now terminate the lease, but the landlord CAN if you agree.

 

[WaveJumper]

As above, but sit down and have a chat with the landlord explain your position (ultimately you want to go) any decent landlord (and you might be lucky) will continue to look for other interest (especially if they have already had some) as this may work in their favour regarding future higher rental income.

 

[EmbraFella]

I assume you don't have the right to assign your lease to a third party?

It's definitely worth your while having a conversation with your landlord. If you're feeling brave enough. Options could be to pay some or all of his legal costs to get a new tenant in, or perhaps his agency costs, or all utility costs while vacant. Or find a replacement for him. His fear may be the loss of income for 6 months to a year while a new tenant is found.

 

[Michael Loveridge]

Unfortunately this happens quite frequently, and if you miss the deadline you're basically stuffed.

Is there any local demand for the sort of premises you occupy? If so the it might be worth trying to find someone to take over the lease. Most leases will allow you to assign it to someone else with the landlord's consent, so that may be an option.

If there's not a lot of demand, or the property is over-rented (i.e. the actual rent is more than the current market rent) you might consider offering a `reverse premium' - i.e. you pay someone a lump sum to take the lease off your hands.

If this isn't an option then it may be worth seeing if the landlord would take a lump sum to release you.

Finally, as has been said, if you're operating through a company with no assets it would be worth considering just closing the company and walking away. Or perhaps more creatively, you could tell the landlord this is what you will do if he doesn't allow you to end the lease, and use it as a negotiating tool.