Commercial Lease Surrender

How to surrender a commercial lease

Approaching your landlord to seek an early exit from a rental agreement may seem daunting, but surrendering a commercial lease can benefit both parties.

As a tenant, you can free yourself of a financial obligation that may have become difficult to meet or find a space that better suits your needs. Landlords, on the other hand, may welcome the opportunity to find a new tenant on improved terms or sell or redevelop the property. 

If you are considering ending a commercial lease early, it is important that you understand your options, know how to surrender a lease and are fully aware of how professionals like us can support you. Get started today by reading below or contacting our lease specialists now.

What is a lease surrender?

A commercial lease surrender is a mutual agreement between a tenant and landlord to terminate a lease before the original contract’s end date. Bringing the lease to an early end means the landlord regains control of the property and the tenant is no longer liable for future rental payments.  

It is usually the case that a tenant instigates the lease surrender process, most commonly because they are struggling to pay the rent. It is then up to the landlord to consider whether surrendering the lease suits them and to negotiate terms.

During negotiations, the landlord may seek to retain the deposit or request payments to ensure there is no interruption of income. They might also try to make sure other liabilities, such as business rates, are paid. Both parties can decide not to accept a lease surrender.   

How does a lease surrender work?

A commercial lease is surrendered when both parties agree to terminate the lease before it is due to end. The date of surrender will usually be several months in advance to enable the tenant to make the necessary repairs, sell stock and prepare for their exit. The landlord can use this time to market the property and find a new tenant.

There are two ways to surrender your tenancy:

By deed of surrender

A deed of surrender is a legal document that a landlord and tenant sign to end a lease. It is a binding contract that sets out the rights and responsibilities of each party. This is the most common form of surrender and is legally required for commercial leases made by a deed with a term of three years or more.

The surrender deed will state the date when the lease ends and include the terms of the surrender. For example, there could be outstanding payments the tenant must make, such as rent or service charge arrears, outstanding repair costs (known as dilapidations) or charges that will become due when the landlord carries out the annual reconciliation.

If applicable, the landlord must also seek the consent of their mortgage provider, if they have one, because the surrender could represent a breach of their mortgage conditions.  

Implied surrender by conduct

If there are no rent arrears or other liabilities to settle, you may be able to surrender the tenancy without a formal document. Known as a ‘surrender by operation of law’, the tenant’s and landlord’s conduct must show that both parties accept the lease surrender.

The acceptance of the commercial lease surrender is usually symbolised by the tenant leaving the property, removing their possessions and handing back the keys, and the landlord accepting them. At that point, the lease will end.

What are the other ways to end a commercial lease early?

Before you voluntarily surrender your property, it is worth considering the other routes to end a commercial lease before its end date. The alternatives include:

• Break clauses – The first thing to check is whether the lease has a break clause. Not all commercial leases contain break clauses, but it can be a cost-effective way to end the lease, as long as you serve your notice correctly
• Assignment – Find a replacement tenant to take over the lease. The landlord must approve the new tenant, and they will become liable for the rent and the other obligations contained in the lease
• Subletting – Rather than transferring the lease, the existing tenant may be able to rent all or some of the space to a third party under a sublease agreement. You will usually need the landlord’s consent to sublet, but it can be an effective solution for both parties

How much does it cost to surrender a lease?

That depends on the particular terms of your lease. The following are the costs that will usually apply:

• Surrender fee: The landlord may ask you to pay a fee before surrendering your tenancy. It may not be written into the terms of your lease, and can be negotiated with your landlord
• Outstanding charges: A lease surrender removes your obligations from the date of the surrender, but it does not wipe the slate clean. If you owe your landlord for outstanding rent, service charges or repairs, they will want to recoup those payments
• Lost rental income: The landlord may also ask you to make a payment to cover the income they are likely to lose by agreeing to end the tenancy early
• Payments in advance: Rent and service charge payments are often made quarterly and in advance. If you surrender a lease, the money you have paid in advance will not necessarily be refunded, but the landlord may be prepared to negotiate a refund as part of an overall settlement
• Legal and professional fees: You may require professional assistance to review your lease conditions and negotiate a surrender with your landlord or tenant

What are the implications of a lease surrender?

If you want to surrender a commercial lease, some aspects to consider before contacting your landlord include:

Making repairs

As a tenant, you will usually be required to return the premises to the standard of repair it was in at the start of the lease. You may need to carry out repairs and reinstatement or agree on a dilapidations claim with your landlord.   

The impact on guarantors and subtenants

If you have a guarantor for your obligations under the lease, their responsibility for future liabilities will end on the surrender date. However, they can still be held liable for outstanding costs.

Alternatively, if you have a subtenant who rents space from you, the landlord will become their direct landlord when you surrender the lease.

Liability for business rates

As a landlord, you will become liable for business rates if the property remains unoccupied for over three months. You may want to factor this in when deciding whether to agree to the voluntary surrender of your property and negotiating an appropriate settlement. 

Can I get help with my lease surrender?

Our experienced lease advisory team can provide practical advice and assistance to help you surrender or exit a commercial lease on favourable terms. Learn more about our lease advisory service or get in touch to discuss negotiating or drafting a deed of surrender, as well as your other options for terminating a commercial tenancy. 

Why should I use Eddisons for support with my lease surrender?

Navigating a commercial lease surrender is significantly easier when you have experienced professionals by your side. Some reasons to choose us for this service include:

• We have over 180 years of experience across the property industry
• Our teams have vast knowledge of various sectors, allowing us to provide bespoke lease surrender support for your specific business
• We have a proven track record and positive reviews to back up the quality of work we promise to deliver
• Our commercial lease surrender services are available nationwide, with dedicated professionals in over 30 offices across the country
• We are RICS-certified, giving you peace of mind that our services will follow strict industry guidelines

Contact us to discuss your commercial lease surrender today

If you are a landlord or tenant and would like to receive more advice on your responsibilities in your commercial property lease, please use the form below contact one of our lease experts today.