Cozens-Hardy partner Dan Evans considers the rights of landlords if a tenant wants to leave.
As has been well publicised in the press, times are tough. Well-established operators are taking the decision to close shops, leaving landlords in potentially tricky positions. In Norwich, high profile operators such as Toys R Us and Jamie's Italian have decided to close their doors.
With some tenants looking to leave, landlords need to know their rights. If a tenant wants to vacate the property during their lease term, then this is normally done in one of three ways:
Insolvency
I've discussed this topic in a previous article so don't propose to go into any great depth this time. The reality is that if a tenant has entered insolvency proceedings there is little a landlord can do.
Break clauses
Break clauses are common in modern commercial leases and enable a tenant to terminate their lease early.
Most break clauses are conditional, the most common conditions being:
1) The tenant having complied with the terms of the lease (such as repairing covenants).
2) Not less than six months' notice must be given.
3) Tenant must be up to date with their rent.
If these conditions are fulfilled, the tenant may vacate. Any 'pre-break liabilities' remain and a landlord will still have the right to pursue the tenant for these.
Notice requirements in break clauses are important and missing a deadline by even a day can render a break notice unenforceable.
Assignment
Most leases contain the right for a tenant to assign (transfer) the lease to a new tenant, but in most cases the landlord's consent is needed. A landlord must act reasonably in considering a consent application, which involves carrying out due diligence on the proposed new tenant to make sure that they are of a financial position to comply with the terms of the lease.
Leases often contain rights for a landlord to request rent deposits or further guarantees as a condition of the landlord's consent to assign, albeit there are obligations on the landlords to behave reasonably in considering an application - and reasons must be given if consent is to be withheld.
As re-letting property has become harder in recent months, it is important that landlords knows their rights and take appropriate action.
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