Exit Options for Tenants in Commercial Property Lease and Brick and Mortar Businesses

Vengardesh Sivapatham

by Vengardesh Sivapatham LLB (Hons), LLM, Solicitor

05 July 2023

In my experience of being a commercial property solicitor for more than a decade in acting for commercial property leases, a common issue that resurfaces is tenants signing leases without having a detailed understanding of the nature and scope of what is agreed despite retaining solicitors and legal advisors.

Principally, a lease reflects an agreement to pay rent for a period of time. Once locked in, most standard commercial leases do not have an exit plan and lock the tenant into paying rent for the entire term of the lease. Some tenants give little thought to the extent of the financial obligation they are taking on and only look for an exit strategy once the lease is actually running and the tenant is in financial difficulties.

Often when a tenant is unable to meet rental payments, many a tenant's natural response is to sell his business as an exit option, only to find that it is not so easy. First, a tenant needs to find out whether a sale of his business and transfer of his lease (known as an assignment) is possible under lease terms. Some leases outright prohibit assignments. A tenant in a position described above undergoes enormous strain, both financial and emotional, of not being able to do anything in a timely manner, and this can be very frustrating for a tenant.

In some circumstances a tenant may have entered into a lease that allows the leasehold interest to be transferred to the purchaser of the business, then the tenant may find that they need to meet requirements or pre-conditions under the terms of the lease. Such requirements can be very onerous and often involve costs on the part of the tenant including landlord's solicitors' costs.

If a tenant does not consider the restrictions or prohibitions on assignment at the outset, then the tenant may find that despite the tenant putting in time and effort in securing a buyer for his or her business they will not be able to transfer the lease. It is very prudent for a tenant to look up the terms of their existing commercial and business lease terms before spending resources in arranging the sale of their business.

It is sometimes become too overwhelming for the tenant and he or she attempts to leave the shop and walk away, not realising that the rent is accruing, which has to be paid later. Walking away whilst a lease is running is not the most prudent option given that it may feel easy at the time, but may prove very costly in the medium and long term.

Commercial property tenants and businesses often find that they are all out of options when faced with a no-exit situation and often mistakenly see the landlord as the nemesis. Tenants, on some occasions, take the not-so-wise of option of arguing with the landlord, sometimes in an unpleasant and abrasive manner. Little do such tenants realise that they are reducing their future options and quite often cementing their own downfall.

The best course of action would be to speak to an experienced commercial property solicitor as soon as possible. It is best to discuss existing options and implementing such options in the lease before signing it. Even after signing a lease, expert and sensitive negotiations can be used to save the situation. A skilled commercial property and business lease solicitor is vital if a tenant wishes to reduce risk or reduce the extent of potential losses that a tenant may face.

In summary, if a tenant finds themselves in a position where they are unable to pay rent it is imperative to calm down, get expert solicitors’ advise and make an informed decision once all options are established. It is best to avoid decisions made with little knowledge and purely on emotion as this may often yield the opposite result from what the tenant wishes to achieve.

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If you are a tenant thinking of selling or leaving your business or commercial lease, get is touch with us on 020 88 666 333. We provide a wide range of services for tenants.

The opinions expressed in this article should not be construed as legal or financial advice, and should not be relied upon. If you require legal or financial advice, you should seek the assistance from a professional.

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