Navigating Lease Surrenders

• Published date: 15 August 2023
• Law Firm: Lewis Silkin
• Author: Patrick Brown

Corporate occupiers wanting to exit their premises midway through the lease term, have various options available to them: breaking the lease, assigning or subletting, or surrendering. In this article we explore lease surrenders and the issues surrounding them.

Why surrender?

Unlike an assignment or subletting, a surrender typically brings the tenant's liability to an end, as the lease no longer subsists. Surrenders can be entered into at any time (unlike break rights which are often fixed to a specific break date or dates) and so can be a useful way for a tenant to move on.

Bargaining Stength

The first thing to consider when contemplating approaching a landlord to ask for a surrender is the hand the tenant has to play; the strength of its bargaining position. There are numerous permutations to factor into this assessment, including external market forces - which a good property agent will be able to advise on - but the main ones are:

• Whether the property is under-rented: if this is the case, a landlord may be eager to take the premises back and re-let it at market price.
• The landlord's plans for the building perhaps there are plans to redevelop the building, or to use it for its own purposes. The local authority's planning portal will indicate whether applications have been made, or permissions granted, but you might also want to scour the local area for public notices posted on lampposts and the like, or check whether any public consultations have been, or are to be, held.
• The remaining duration of the term: surrender premiums (which will be covered more fully below) are likely to be lower if you are only talking about the rump-end of a lease.
• Any interested parties waiting in the wings there may be a marquee tenant wanting the space who the landlord is keen not to lose.

Once a deal has been struck, attention turns to the practical and legal aspects of the surrender.

If you are looking to dovetail the exit from your current space with the occupation of new...