Bailing out of a commercial lease
Discussion
I took a lease out a year ago for some premises to expand my business. I knew there would be risks and decided to go ahead anyway. Turns out that the business expansion hasn't panned out and the premises are now surplus to requirements.
Here's the situation in brief:
I feel the landlord doesn't think too highly of me, but probably wants to retain my rent income as he's got one empty unit already.
Ideal outcome is I keep the premises and open the new business in it.
Second best is I bail out scot-free.
Third is I bail out with a penalty charge.
Worst case scenario is I keep paying for the remainder of the time. It won't cripple me but it wipes out a lot of profit. If that's my fate then so be it, it was my risk to take.
So any ideas here? Obviously I'll be running the contract past a solicitor if I can't reach an amicable solution but interested to hear people's thoughts.
Here's the situation in brief:
- I am 1 year into the lease with 2 years left remaining, no break clause
- Rent payment at circa 12k/annum is about 20-25% of company income (which is generated completely independent of the premises)
- Business has changed unexpectedly and the premises are now useless to my normal activities
- I have a new business idea to make use of the space, which I would set up as a new Ltd Co (still solely directed by me), and made a proposal to the landlord that I sublet the premises to the new company. Sublet is permitted in the contract with landlord consent, not to be unreasonably withheld. Landlord refused consent although has not as yet provided any official reason. Indication is that he mistakenly believes the new business will create some mess and noise which I have already stated is not the case - as I understand it these aren't valid grounds for rejecting anyway.
- I have been consciously breaking a minor clause in the contract since day 1, without the landlord's knowledge. He has recently begun to suspect I am breaking it though has not officially accused me of it yet.
- Landlord owns a number of other neighbouring units including one next door which has sat empty the entire time, suggesting he is struggling to find tenants, though it is admittedly large (twice the size of mine).
- I personally am guarantor on the lease.
- The company is pretty small and only employs me, if I needed to wrap it up for whatever reason I would be happy to do so as long as it wouldn't have any consequences on me personally (credit ratings etc)
- Any legal battle would probably not be worth it financially considering the figures involved
- I am paid up with rent and have paid on time every time, give or take a few days.
- Next quarterly rent payment is coming up at the end of the month.
- As I've left it I have asked the landlord to state his reasons for rejecting consent to the sublet & asked he reconsider given my financial concerns and the fact that the proposed business is perfectly legal, legitimate, and self sustaining; also given that I'm still liable since it's a sublet and that its sublet still to myself; and that he has had one unit sat empty for at least a year already.
I feel the landlord doesn't think too highly of me, but probably wants to retain my rent income as he's got one empty unit already.
Ideal outcome is I keep the premises and open the new business in it.
Second best is I bail out scot-free.
Third is I bail out with a penalty charge.
Worst case scenario is I keep paying for the remainder of the time. It won't cripple me but it wipes out a lot of profit. If that's my fate then so be it, it was my risk to take.
So any ideas here? Obviously I'll be running the contract past a solicitor if I can't reach an amicable solution but interested to hear people's thoughts.
Edited by OwenK on Thursday 1st September 08:56
Edited by OwenK on Thursday 1st September 09:08
The fact that you have been breaching the lease has no merit. The LL may be able to forfeit the lease (it's not necessarily easy for a longstanding breach), but if he does not want you out it is not going to help.
Your exit is governed by the alienation clause. I'm not surprised he's not keen on the sub-let.
If the use that you are proposing is within the user clause there is nothing to stop your current business doing this, whether he likes it or not, subject to it complying with other terms of the lease.
If you base both businesses there he'd be hard pushed to kick you out, as the tenant would be in occupation.
As you have a pg, don't expect to walk away prior to the end of the lease without doing a deal. Don't forget dilaps.
Your exit is governed by the alienation clause. I'm not surprised he's not keen on the sub-let.
If the use that you are proposing is within the user clause there is nothing to stop your current business doing this, whether he likes it or not, subject to it complying with other terms of the lease.
If you base both businesses there he'd be hard pushed to kick you out, as the tenant would be in occupation.
As you have a pg, don't expect to walk away prior to the end of the lease without doing a deal. Don't forget dilaps.
Thanks for that! I included stuff about contract breach etc just for all background info and potential angles to be played.
The new use is within the permitted use classes.
I would still prefer to structure the new use under a new limited company, which I guess would still count as a sublet under the contract, even if no money changes hands and no new contract is in place?
It sounds to me like if I went ahead with the new use in whatever structure, the landlord would either have to decide to kick me the primary tenant out over it (difficult? At most, guarantor is liable for rent until a new tenant is found, which the landlord is obliged to do to mitigate his losses?) or at worst try to sue me for damages - not sure what they'd even be assuming rent is still being paid on time - the cost of his solicitor's angry letters?
The new use is within the permitted use classes.
I would still prefer to structure the new use under a new limited company, which I guess would still count as a sublet under the contract, even if no money changes hands and no new contract is in place?
It sounds to me like if I went ahead with the new use in whatever structure, the landlord would either have to decide to kick me the primary tenant out over it (difficult? At most, guarantor is liable for rent until a new tenant is found, which the landlord is obliged to do to mitigate his losses?) or at worst try to sue me for damages - not sure what they'd even be assuming rent is still being paid on time - the cost of his solicitor's angry letters?
PurpleMoonlight said:
Does your Lease permit occupation by associated group businesses?
If so, establish the new co as a subsidiary of existing co, and use the unit for new co.
Good spot!If so, establish the new co as a subsidiary of existing co, and use the unit for new co.
Tenant may share occupation ... With a company which is a member of the same group ... So long as both remain members ... And does not transfer or create a legal estate
Notwithstanding [this earlier clause]:
Alienation: not to hold on trust or part with the possession of whole or part premises, or permit another to occupy whole or part of the premises.
I think that makes it completely above board if both companies are of the same group?
I've already set up the new company unfortunately and it's a standalone entity, is this something I can sort out easily?
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