Leaving Lease early

[Kelly kookoo]

Hi everyone I’m new to the site .
I took on a small local shop around 4 months ago . Unfortunately even though we took out a loan to fund it the shop is still just draining money . We are now in a position where we are close to running out of funds . I have spoken with the landlord who at sign up insisted he was more of a mentor than landlord and would do anything to help grow the business ! I asked for any help with regards to rent in the coming few months , just to keep us afloat. He refused point blank and asked me to sign a form that gives him permission to find someone to take on the lease but it stated I am still responsible for the lease . (If they don’t pay I still have to ) . Is there any way around this ?
If worst case donations I have no rent to pay him what happens ? I have no assets no house car etc . The majority of the loan was spent on decorating , having electricians for electrics to the shop ( as there was just one light no sockets ) . Basically is there any way I can ask him if he finds someone else I can demand he releases me from the tenancy . Thanks in advance everyone .

 

[pentel]

You are tied by the terms of the lease.

The lease may allow for assignment which means that you can find a new tenant and have them take on the responsibility for the lease however it is usual for you to still be held responsible for unpaid rent and repairs etc.

Hopefully you took professional advice and have a break clause in the lease.

 

[Chris Ashdown]

Before you give up, what sort of shop is it and why is it loosing money

Did you buy and continue the shop from previous company and have the facts they gave about turnover and profits been totally wrong in which case there could be a possibility of taking legal action about them

Unfortunately if you are a sole trader then you will probably be liable for the rest of the lease and landlord can get a ccj against you, if a limited company you may have protection if you have not signed a personal guarantee

Maybe some facts about the shop and what you are trying to sell may get more help and suggestions

 

[Mark T Jones]

As above. You have entered into a legally binding contract as a business owner

Your future actions need to be informed by the terms of that contract, and mature negotiations with your landlord.

 

[Mr D]

Is this a limited company you have?

Have you signed a personal guarantee?

 

[kulture]

Do not sign anything without taking legal advice from a commercial property solicitor. I do not understand why the landlord wants you to sign a further document as normally the lease would cover this eventuality. The concern is that the lease may NOT have covered this eventuality and this document may give you additional obligations.

 

[Kelly kookoo]

Thanks everyone
Ok some facts
It’s a small shop in a small village in West Yorkshire .
I did the research and also live local so decided on selling ladies clothes (new ) they have a couple of charity shops but otherwise it’s a bus ride to the town to go clothes shopping .

In order to have a full shop I spent a lot on stock , all current all ages and what I would consider to be relatively low priced but still if food quality .
The feedback I got was amazing from people coming in , but they just aren’t buying . They sort of casually say as they are looking “I go to primark or I shop in town for clothes “ I know the stock is good quality and on fashion but sadly I have learned through practice , the people of this particular area don’t want to spend the money .
I have clothes shoes and bags and a small section of kids clothes that I purchased within the 1st month due to many customers asking for kids clothes !
I have a 3 year lease with a break at 12 months which is October but the reality is I don’t have the money to pay the rent next time , I have sat in the shop and over a 3 day period I made £2:50 . This is soul destroying . I am a sole trader
I don’t own anything , I don’t own my house or car . I took out a £10k loan for this venture that I will pay back over 6 years . Every penny has gone on the shop . Not just stock but total redemption and new electrical sockets fitting as there was no electricity to the shop when I took it .
I don’t have the money to pay him if I leave the shop and he has offered to try and have someone else take the lease , I’m just worried that someone may come in and leave after a few months through no fault of their own and I will be stuck with the rent again and effectively nothing for the shop

 

[Chris Ashdown]

I would suggest the first thing is to recover some money by holding say a 50% sale straight away, if you don't and close down your stock at auction will probably only get 10% of your buying price if its a great day, none of the big firms would be interested in mixed stock from a small shop

Don't sign anything with the landlord

If the sale meets next months rent so far so good it gives you a bit further to sell the goods

From the sound of it , the landlord would have little to gain by taking action against you, but i would suggest you write to him first and tell him your taking the break option for next October

 

[Gecko001]

Chris's advice seems to be spot on to me.

One puzzling thing to me is how you managed to get a £10k loan in the first place?

 

[Kelly kookoo]

Thanks Chris

I do already have everything reduced so far it’s not making too much difference, I think the time of year is a factor also . No I haven’t signed anything yet , I am hopping to speak with a solicitor early next week .
I have put in writing I will be ending the lease at the 12 month stage in October . Thanks very much for the advice

 

[Kelly kookoo]

Hi Gecko001

What is it you want to know about how I got the loan ? I applied to the bank and they approved it , is it the specifics your curious about ?
Thanks

 

[Toby Willows]

..................

 

[Chris Ashdown]

IAs you have informed the landlord now mark on the windows Closing down sale so they know they only have a limited time to buy

Just stating a sale is good but does not make them rush to buy but closing down may give the extra push

With fashion clothing its the hardest thing to sell as its not normally what you like that sells but what the fickle customers like that makes a sale, and very small footfall out of the main shopping area's. Could you sell anything else like food corner shops on a small scale?

Good luck

 

[Gecko001]

Hi Gecko001

What is it you want to know about how I got the loan ? I applied to the bank and they approved it , is it the specifics your curious about ?
Thanks

Usually banks do not give business loans unless they have some sort of collateral. In your first post you said that you do not have any assets. Post credit crunch banks are very careful giving out loans and if you could give us all some details on how you managed a business loan without having collateral, it help a few people here.

 

[Chris Ashdown]

I doubt how he got a loan is of any interest to anyone else as it obviously always depends on the person applying, so different for each and every one of us

The OP came on the forum for advice going forward not to be asked personnel questions

 

[Gecko001]

I doubt how he got a loan is of any interest to anyone else as it obviously always depends on the person applying, so different for each and every one of us

The OP came on the forum for advice going forward not to be asked personnel questions

I believe the loan was a business loan. This is a business forum. Is it really a personal matter? Does it really depend on the person applying? Anyway, sorry for any offense caused if you or the OP thought that I was trying to get personal details from the anybody. That was not my intention.

 

[Kelly kookoo]

It was a personal loan not a business loan .


I am confused as to weather I should sign this form or now the landlord has arranged for an estate agent to come and photograph the property and he wants this signed before that .
Can anyone advice can it harm me at all ?


It states

Pleas not
This form is used in the event a retail shop tenant needs to close their business , but are still under their legal obligations contained within their lease agreement .
This signed form gives the authority for (??) properties to market and re let the property on behalf of the tenant , without dissolving the existing lease obligations .

The tenant agrees to give full cooperation in prospective tenant viewings and acknowledges that any use of the property keys by the landlord or his agents , is not an acceptance of returning the property back to the landlord .

 

[Toby Willows]

It was a personal loan not a business loan .


I am confused as to weather I should sign this form or now the landlord has arranged for an estate agent to come and photograph the property and he wants this signed before that .
Can anyone advice can it harm me at all ?


It states

Pleas not
This form is used in the event a retail shop tenant needs to close their business , but are still under their legal obligations contained within their lease agreement .
This signed form gives the authority for (??) properties to market and re let the property on behalf of the tenant , without dissolving the existing lease obligations .

The tenant agrees to give full cooperation in prospective tenant viewings and acknowledges that any use of the property keys by the landlord or his agents , is not an acceptance of returning the property back to the landlord .

What you need is a agreement that if a new tenant is found then your lease will end “by operation of law”. This is a simple process that cost less than £200 and releases you immediately from all obligations under the lease. The above form seems reasonable but if it results in just a assignment or sub-let then you really want more control over who the new tenant is.

 

[Chris Ashdown]

I think basically its saying he will still want his contact money until the break period, but if you sign this he will market the place and somebody may take the lease over before the break clause and take over any debt for the lease from when they move in

Still see a solicitor you normally get 30 min free or maybe a qualified person on here will give good avice

 

[Kelly kookoo]

I have asked if to amend so that should he sign someone else up I can be released but he has refused , can I apply for this “by operation of law “ or is it something he (the landlord) has to agree to ?

 

[rach88]

If you give the keys back to the landlord, and he accepts them, then that may constitute an implied surrender of your lease (also known as a surrender by operation of law). This would bring the lease to an end. The landlord wants to avoid this happening but he still wants to get access to the property for the purposes of marketing it so he can find another tenant. This is why he wants you to sign that declaration - it's to cover himself, and to make sure the lease (and your liability for rent) continues while he is looking for another tenant. I don't think it's anything more sinister than that.

You say you have put in writing that you will be ending your lease at the 12 month break in October. If you are going to get 30 minutes of legal advice I would focus on getting the solicitor to check that you have correctly served your break notice. One small mistake and the notice could be invalid. If there are any mistakes you probably still have time to re-serve it. Have you looked at the wording of the break clause? It will likely have preconditions such as being up to date with the rent - and this can include for instance having paid any interest chargeable on late payments, even when that interest has not been demanded. It is likely to also be subject to you giving vacant possession of the property as at the break date which will mean completely clearing out the unit and making sure the landlord has the keys back before the break date. There may be other conditions. In addition, you will need to have properly served the notice in line with any service provisions in the lease.

 

[The Byre]

1. Chris has given you all the advice you need. Just follow it!

2. Learn to play hard-ball! Your landlord needs you as much as you need him - if not more!

 

[Toby Willows]

1. Chris has given you all the advice you need. Just follow it!

2. Learn to play hard-ball! Your landlord needs you as much as you need him - if not more!

So wrong on so many levels.

 

[Toby Willows]

If you give the keys back to the landlord, and he accepts them, then that may constitute an implied surrender of your lease (also known as a surrender by operation of law). This would bring the lease to an end. The landlord wants to avoid this happening but he still wants to get access to the property for the purposes of marketing it so he can find another tenant. This is why he wants you to sign that declaration - it's to cover himself, and to make sure the lease (and your liability for rent) continues while he is looking for another tenant. I don't think it's anything more sinister than that.

You say you have put in writing that you will be ending your lease at the 12 month break in October. If you are going to get 30 minutes of legal advice I would focus on getting the solicitor to check that you have correctly served your break notice. One small mistake and the notice could be invalid. If there are any mistakes you probably still have time to re-serve it. Have you looked at the wording of the break clause? It will likely have preconditions such as being up to date with the rent - and this can include for instance having paid any interest chargeable on late payments, even when that interest has not been demanded. It is likely to also be subject to you giving vacant possession of the property as at the break date which will mean completely clearing out the unit and making sure the landlord has the keys back before the break date. There may be other conditions. In addition, you will need to have properly served the notice in line with any service provisions in the lease.

Just giving back the keys doesn’t constitute a end of the lease by “operation of law”, it’s a legal document that needs to be signed etc. It’s not a usual way to end a lease because it’s all in the tenants favour. BUT if you have a quality tenant to take over the premises it works for everyone.

 

[Mr D]

So wrong on so many levels.

Which bits are wrong?
Not disagreeing, just want to be informed.

 

[rach88]

Just giving back the keys doesn’t constitute a end of the lease by “operation of law”

A surrender can occur either expressly (using a deed of surrender) or by operation of law.

A surrender by operation of law means one which has been implied through the parties' conduct. For a lease to be surrendered by operation of law, both landlord and tenant must unequivocally act in a way that is inconsistent with the continuation of the lease. One example of this is the landlord unconditionally accepting the keys back. That is why the landlord here is being careful to get something in writing explaining why he is holding the keys. However recent case law has shown there is a high threshold before a surrender will be implied.
http://www.blplaw.com/expert-legal-...on-of-law-levett-dunn-v-nhs-property-services

It's better to get a surrender documented via a deed of surrender if you can, to avoid any ambiguity or disputes down the line.

 

[Toby Willows]

A surrender can occur either expressly (using a deed of surrender) or by operation of law.

A surrender by operation of law means one which has been implied through the parties' conduct. For a lease to be surrendered by operation of law, both landlord and tenant must unequivocally act in a way that is inconsistent with the continuation of the lease. One example of this is the landlord unconditionally accepting the keys back. That is why the landlord here is being careful to get something in writing explaining why he is holding the keys. However recent case law has shown there is a high threshold before a surrender will be implied.
http://www.blplaw.com/expert-legal-...on-of-law-levett-dunn-v-nhs-property-services

It's better to get a surrender documented via a deed of surrender if you can, to avoid any ambiguity or disputes down the line.

“By operation of law” is a easy, cheap and advantageous solution to both parties if it’s agreed by both. There is no downside or dispute and is what the OP should be looking for. Actually with a break being taken in just eight months I’d be surprised if there was a viable alternative if a new tenant was found as no tenant will take on a assignment or sub-let that has a break invoked in a matter of months.

I agree with your last paragraph which is exactly how it should it be done. I’ve done it twice and on both occasions it was a simple document provided by the landlord’s solicitor that required signing and witnessing and then handing back the keys and walking away. Yes I did get the document checked over by my solicitor!

 

[Toby Willows]

Which bits are wrong?
Not disagreeing, just want to be informed.

Mainly “your landlord needs you as much as much as you need him, if not more”. That simply isn’t true in most cases.

 

[Mr D]

Mainly “your landlord needs you as much as much as you need him, if not more”. That simply isn’t true in most cases.

Thanks for that, I learn something new.

 

[The Byre]

Amongst other things, we are landlords - and we need tenants, both the private tenants and the commercial tenants. Good tenants that pay on time and otherwise leave us in peace are not that plentiful. The age of the landlord being some all-powerful being, as a result of a massive shortage of commercial properties, is over.

Today's tenant is a customer and needs (and should be) treated as such.

 

[Toby Willows]

Thanks for that, I learn something new.

Sorry, not very helpful was it!

A landlord doesn’t need you more than you need him, particularly in this case. The last thing a landlord needs is a tenant with a business that didn’t even get off the ground and has no means of paying the rent. In this instance the OP doesn’t even have a ball play with let alone the option of playing hard ball. Savvy landlords will be very particular who they rent to and will avoid startups unless the ability to pay is proven.

 

[Mark T Jones]

Ok - I'm really not sure what point I'm missing here, or why the OP is being given false hope?

As far as I can see:

• The OP can't pay rent and as such is not a desirable tenant, nor are they in a position to play hardball.
• The obvious solution is to assign the lease to a third party who can pay (at least for the remainder of the term), which both parties are trying to achieve
• Surrender requires unconditional hand-back of keys, which it clearly isn't

So OP, by all means take free legal advice, but don't throw good money after bad or go on wild goose chases, concentrate on resolving the issue in an up-front way.

Realise every penny you can from your business assets, including exploring online avenues.

Work with the landlord to find a suitable tenant ASAP (it's relatively unusual for a tenant to default in the first 6 months)

Remember that if you 'go legal' you will lose the goodwill - and it is pretty likely that you landlord is better equipped than you are to fight this through the courts

 

[Chris Ashdown]

I understand that many modern leases have a clause that if your company fails and you manage to find someone to take over the lease, then you are still responsible for any short comings of the rent or building insurance

I also doubt a landlord would just agree to handing back the keys as a termination of the lease unless he had a potential new person interested in the building

 

[rach88]

Sorry, yes - getting sidetracked by the surrender thing. This would indeed only happen if another tenant is found.

- The OP should make absolutely sure they (successfully) exercise their break option. This draws a line under their liability. They should get legal advice to make sure they have correctly served the notice and know what conditions they need to comply with.

- The remainder of their lease (expiring October following exercise of break) will not be particularly attractive option for a new tenant to take as an assignment. So, if a new tenant is found before October it makes sense for the landlord to accept a surrender from the OP and grant a new lease to the incoming tenant. This makes sense from the landlord's perspective as they want someone in who will be able to pay the rent.