Practical Tips for a Landlord Terminating a Business Lease
March 7, 2017
We set out below some of the issues Landlord’s should consider when considering terminating a business Lease:-
- Check the Lease terms – you may be able to terminate the Lease if there are rent arrears or if the tenant is in breach of covenants such as disrepair or non-payment of rents. The Lease will usually require you to first make the tenant aware of the alleged breach or give it an option to remedy the same
- If the tenant has cash flow problems, a simple change in the way it pays the rent to you, for example paying the rent in monthly instalments as opposed to quarterly, may resolve the problem for you and should keep the tenant
- If you wish the tenants to vacate the premises, the alleged breach may be sufficient to trigger forfeiture provisions in the lease
- You will usually be entitled to forfeit the lease if the rent remains unpaid for 21 days or more and for various insolvency events. If you have decided that you wish to forfeit the lease, you need to ensure that a demand for rent is not sent out or late paid rent is not accepted.
- If the tenant has gone into insolvency or administration, it might be better for you to regain possession of the premises as soon as possible so that you can re-let them. You can try to recover any rent arrears from the receivers or insolvency practitioner of the tenants
- If the tenant is only temporarily in financial difficulties, terminating the lease may not be the best option for you. Obviously issues such as market conditions and the prospects of re-letting the premises are to be taken into account.
- There may be other remedies available to you such as drawing down on a rent deposit or asking a guarantor to meet the obligations in place of the tenant. If there is a rent deposit you will usually be entitled to draw down any rent arrears of the deposit to put right any breaches of covenants. Therefore you should check the terms of the rent deposit.
- If the lease was assigned, there may be a guarantee from the former tenant. If the lease was granted before 1st January 1996 the original tenant will remain liable through the duration of the lease term.
- If the premises in question are purely commercial premises and do not contain a residential element i.e. a flat above a shop, you may be able to enter the premises and seize any goods belonging to the tenant, providing first that you give notice to the tenant of your intention to do so. You must sell the goods for the best price that could be reasonably obtained. You are only able to use this remedy to recover pure rent, together with interest and VAT and not able to recover any unpaid rates, insurance rents or service charges.
The information contained in this article is intended for general guidance only. It provides useful information but it is not a substitute for obtaining legal advice as the articles do not take into account specific circumstances. So do please Contact US for legal advice on the issues raised.