There are various reasons as to why you might want to exit from your lease, but what options do you have if you want to do so before the end of the lease term? In order to assess your next steps, you must first check your lease and ask the following questions:
- Does the lease contain the tenant’s right to terminate early (e.g. break clauses)?
- Does the lease allow for assignments to third parties and if so, on what conditions?
- Does the lease allow underletting and if so, on what conditions?
The lease may contain a clause enabling you to end the lease early. Break clauses may state specific dates that a lease can be terminated, or allow for an ongoing right to terminate – usually after a certain date. Typically, there are strict conditions to be complied with when exercising a break clause to enable early termination, such as the timing, manner and correct person you must serve the break notice on. Conditions often include the payment of all rent and other sums due under the lease, and giving up possession of the property, which includes removing all tenant fixtures. Failure to comply with the conditions will mean the exercise of the break clause is defective and the lease will continue.
This is where a lease is transferred to a third party (the assignee), who steps in as the tenant under the lease. Leases usually set out the circumstances under which an assignment is permitted.
Usually, an assignment of the whole of the lease to a third party will be permitted with the landlord’s consent, which should not be unreasonably withheld or delayed. When considering consent applications, the landlord will review the financial standing of the assignee to ensure that the assignee will be able to pay the rent and comply with the other lease obligations.
In procuring third party interest with regard to taking over the lease, the prohibition as to use within the lease to that of a dental practice will limit its marketability. You may also have to apply to the landlord to allow for a variation in the lease so as to widen the permitted use to that required by the assignee. Depending on how the lease is drafted, the landlord may be under no obligation to consider the application.
It must also be noted that leases permit landlords to impose conditions when giving their consent to an assignment. You may be asked as the exiting tenant to enter into an Authorised Guarantee Agreement (AGA) requiring you to guarantee the performance of the lease covenants by the assignee. If the assignee does not pay the rent or is otherwise in breach of the covenants, the landlord could ask you as a guarantor to pay any outstanding rent or remedy such a breach. Other common conditions may include a requirement for the assignee to provide a rent deposit or guarantee, and the current guarantor of the lease to guarantee the AGA.
This is where the existing lease remains in place, but you underlease to a third party. Underleases can be of the whole or just part of the property, depending upon the terms of the lease. You would become the landlord of the third party and remain the tenant under the existing lease, maintaining the same liability to pay rent and observe its other lease covenants. The latter liability would then be passed on to the third party via the terms of the underlease.
Most leases will permit underletting, but only with the landlord’s consent. There are often conditions in leases that require certain terms to be included within the underlease. As with assignments, your ability to take an under tenant on will be limited if the permitted use within your lease allows only dental use. Both assignment and underletting would require you to be responsible for the landlord’s costs.
Sometimes a dental lease will permit the dentist to share the property with other dentist associates or companies in the same group. However, the liability under the lease would remain with you until the end of the term.
It is not an automatic right within a lease, but you may be able to negotiate with the landlord for the surrender of the lease. It is up to the landlord to agree to a surrender and the landlord may require the payment of a lump sum to do so.
The options available to you if you wish to exit from your lease during the term are determined upon a full examination of the lease terms. It is not straightforward but can be achieved, please contact Ifath Khan at [email protected] if you would like further information on this subject.