As it has been well publicised in the press, times are tough. Well-established operators are taking the decision to close shops, leaving landlords in potentially tricky positions. In Norwich, high profile operators such as Toys R Us and Jamie’s Italian have taken decisions to close their doors. With some tenants looking to leave, landlords need to know their rights.
If a tenant wants to vacate their property during their lease term, then this is normally done in one of three ways.
- Insolvency. This is a big topic and one that I am able to advise on, but so much will depend on the specific details of any case. Unfortunately, the reality is that if a tenant has entered insolvency proceedings there is little a landlord can do.
- Break Clauses. Break Clauses are common in modern commercial leases and enable a tenant to terminate their lease early. Notice requirements in Break Clauses are important and missing a deadline by even a day can render a Break notice unenforceable. Most Break Clauses are conditional; if these conditions are fulfilled then the tenant may vacate. Note that any ‘pre-break liabilities’ remain and a landlord will still have the right to pursue the tenant for these. The most common conditions are:
- The tenant having complied with the terms of the lease (such as repairing covenants)
- Not less than 6 months’ notice must be given
- Tenant must be up to date with their rent.
- Assignment. Most leases contain the right for a tenant to assign (transfer) their lease to a new tenant, but in most cases the landlord’s consent is needed. A landlord must act reasonably in considering a consent application, which involves carrying out due diligence on the proposed new tenant to make sure that they are of a financial position to comply with the terms of the lease. Leases often contain rights for a landlord to request rent deposits or further guarantees as a condition of the landlord’s consent to assign, albeit there are obligations on the landlords to behave reasonably in considering an application – and reasons must be given if consent is to be withheld.
As re-letting property has become harder in recent months, it is important that a landlord knows their rights and takes appropriate action.