Ending a lease doesn’t mean your liabilities are over and you have nothing more to pay. Thinking this way is a common mistake that businesses make. In fact, there may be some very expensive bills, so this stage needs to be approached in a carefully planned way. The lease sets out most of what the tenant has to do but it may also be silent on other things that will happen and which may cost the tenant dearly.
Be Prepared When Ending A Lease
Above all, be prepared well in advance! If you decide not to renew the lease because you are moving to another premises, you will need to start that process in sufficient time to look at new offices, win the bid to be the tenant, agree the rent and length of the lease with the agent, decide on fit-out works, agree the new lease, plan the office move so as to minimise disruption and then pack up, move and unpack. All this to say, you may need to make plans well in advance. If a lease includes security of tenure, well advised landlords will be making plans 18 months in advance of when the commercial lease is ends. This is because a series of notices will need to be planned carefully and may be 12 months in advance of the end of the lease. It is in everyone’s interest to get organised early when ending a lease.
Understand Your Obligations
When you have decided you are vacating the premises, make sure you understand your obligations under the lease:
- If your lease is silent on the Landlord and Tenant Act 1954, you likely have a lease protected by security of tenure. That means in most cases you can either insist on a new lease of the same premises or get compensation from the landlord.
- If you are not protected by the LTA 1954, the lease will insist that you rectify any alterations you have made. This may simply be a necessary legal device to ensure the tenant does not demand compensation from the landlord, in other words, when it comes to the end of the lease, the landlord will not actually make you rip out the air conditioning etc. However, the landlord can insist on it, so you need to ask the landlord about this well in advance – allow enough time before your commercial lease is ending to reach a commercial agreement with the landlord, to sign something to formalise it and enough time to rectify the alternations if the landlord at any time decides you must.
- If the lease demands that you restore the property to its original state, the landlord may take the view that you are still in possession of the property because e.g. you forgot to remove the data cables you put in the wall.
- If the lease demands that you hand over the premises with vacant possession, you have to be well prepared: if your workmen are still in the premises after the end of the lease, you will not have given vacant possession, even if the landlord knew all about it. If you are vacating the premises by exercising a break clause, that could make your break notice invalid retrospectively and you will have to pay the rent until the end of the lease or the next break date.
- On repairs, be sure you know what you have rented. Does your premises include the windows or just the inside of the window frames? Does your premises include only the surface of the floor or does it include the floorboards as well? If so, how can you check that they are all in good repair? If, during the lease, the tenant made no repairs through the lease, after the lease ends, the Tenant may still have to pay for repairing the property up to the required standard. Generally, the only cost effective way of approaching this is to meet the landlord at the premises, agree on what needs to be done and then do it. The tenant will usually need to pay all or part of the cost of having this done professionally. An alternative, is that the landlord inspects the premises many months after you have vacated, decides by itself what needs to be done, hires someone to do it and then sends you an invoice which could be for a large amount.
- On service charges, you may have a balancing charge to receive or pay after the service charges have been audited after the end of the year – this can be more than a year after you have left the premises.