As occupiers tentatively start to think about a return to the office following more than a year at home, many companies will be reassessing whether the floor space they had pre-pandemic is still suitable for their post-pandemic needs. In this article we will look at some options that companies which occupy offices under a lease should consider if they decide to try and reduce their business space.
Many commercial leases will include an option for the tenant to terminate the lease. Usually the right to break applies in relation to the whole of the leased premises, so this option is only worth considering if an occupier wants to give up all of the floor space granted by the lease, rather than simply downsizing.
Most break clauses come with conditions that must be strictly adhered to in order for the break to be effectively exercised. Typical conditions include a requirement to serve notice on the landlord (often six months in advance of the break date) and a requirement that all sums due under the lease are paid up to date. Occupiers should be warned that failure to meet the break conditions can result in the opportunity to terminate the lease being lost, so it is recommended that expert advice is sought well in advance of the break date specified in the lease
Assignment is the process by which a tenant can transfer its lease to a new party. Again, the right to assign will in almost all cases only apply to the whole of the leased premises. Most commercial leases will provide that landlord’s consent is required in order to assign. The landlord is also likely to have the ability to impose conditions on the grant of consent, which may include a requirement that the outgoing tenant guarantees the incoming tenant’s obligations under the lease (known as an authorised guarantee agreement)
Depending on the terms of the lease, subletting may be permitted either in whole or in part. Subletting may therefore be a viable option for occupiers who want to reduce their office space, rather than totally dispose of it. Again, the terms of the lease should be closely considered for conditions to subletting, and landlord’s consent is likely to be required.
A lease surrender brings to an end both parties obligations under a lease, but requires the agreement of both the landlord and the tenant. A surrender of part might be possible if the space can be configured to allow two entrances and for both units to have sufficient access to services and utilities, including areas such as toilets and kitchens.
The landlord may agree to a surrender subject to certain conditions, for example payment of a ‘surrender premium’ as compensation for the tenant terminating the lease early.