18th December 2008
What are the options for tenants who want to leave before the lease is up?
In modern times a large proportion of property is leased as opposed to owned by its occupants. In commercial situations there are many advantages to being a tenant as opposed to an owner, not least the avoidance of having to come up with funds to purchase a property outright. It is therefore very common for business premises to be leased, usually for a period of years. The tenant purchases a leasehold interest which entitles him to lease the property for the agreed period, and then also pays rent periodically throughout the leasehold.
But what happens when a tenant wants to end the lease before the expiry of the leasehold interest? Much will depend on the lease agreement itself but generally speaking the tenant will remain liable for the rent for the duration of the lease, unless he can come to an alternative arrangement with the landlord.
One way in which the tenant can vacate the premises, without remaining liable for the rent, is to surrender the leasehold interest back to the landlord. The landlord may agree to buy out the remainder of the interest or simply agree to release the tenant from future rent obligation. Once the interest is surrendered the landlord is free to locate a new tenant and sell the leasehold interest to him. It must be noted though that unless the leasehold agreement provides otherwise, the landlord is under no obligation to allow the tenant to surrender the lease.
The tenant can also vacate and find a third party who is interested in renting the property and sublet the premises. When the tenant sublets, the third party must pay the tenant rent but the tenant remains liable to the landlord. Subletting and assignment can be particularly good options for a tenant who wishes to leave a premises. There is nothing to prevent a tenant from making a profit by setting a higher rent for the sublease.
The only issue with which the tenant need concern themselves is whether the landlord’s permission is required. Most leases will require that the landlord approves of the sublessee or assignee, as obviously the landlord must ensure that the party is suitable to occupy the premises. Usually the landlord will concern himself with the kind of business that will be carried out, the financial solvency of the party etc. However, an important issue to note for all tenants is that such permission may not be unreasonably withheld. Therefore if the tenant finds a party who is in fact suitable, the landlord may not refuse to agree to the assignment or sublet unless he has good and valid reason for doing so.
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