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An overview of the surrender of a head lease for landlords and tenants
The general rule is that a lease may only be terminated during the term of the lease if the lease contains a tenant’s break clause. If it does not, the lease can be terminated early by way of surrender however the landlord will need to be in agreement. If the landlord refuses to take a surrender, the lease will have to remain in place.
Where there are existing subleases in place and the tenant’s lease is surrendered, the subtenants will become the direct tenants of the landlord. The premises will continue to be occupied by the subtenants in accordance with the terms of their subleases. As part of the head landlord’s due diligence, they will probably instruct their solicitor to investigate the terms of the subleases before agreeing the terms of a surrender with the head tenant.
If the head landlord does not wish to assume responsibility for the subleases and requires a full surrender with vacant possession, the tenant will need to agree surrenders of each subtenant. Therefore, it is important that before agreeing the terms of a surrender with the landlord, the tenant speaks to each of the subtenants and makes them aware of its intention early in order to ascertain if a surrender is feasible.
Another option for the tenant would be (subject to head landlord’s consent) to assign the head lease to someone who would be willing to take over the premises as the new head tenant. The downside to this is that the assignment of the head lease to the new tenant will not free the outgoing tenant from all the obligations under the head lease whereas on surrender it may be agreed that the tenant is released from all past and future liabilities.
Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.
For advice on surrendering a lease, please contact Agata Marosz in our Commercial Property team on 01992 300333.