What happens to my commercial lease if my business fails?

If you are renting a commercial property on a long-term lease, you will usually have a term in your contract saying the landlord can regain possession of the property if your business fails and you cannot make payments. This is known as forfeiting the lease. However, there are other things that could happen to your lease if your business fails. 

Commercial property leases or tenancies usually continue running until the end date which can sometimes be years and years. However, due to the length of commercial leases, there are options for either party to end the lease early. For example, a lot of commercial leases have a break clause which allows the commercial tenant or landlord to stop the contract early without any penalty or liability. The break clause can be decided before both parties enter into the agreement. For instance, it could come 5 years or 10 years into the contract starting. So, if you find that your business is failing, you may wish to break the contract at this point.

If you as the tenant want to end your commercial lease because your business has failed, you may be able to do this without any issues if your landlord agrees. If you don’t have a break clause that you can take advantage of, this would be a good second option. Your landlord may agree to end the lease early (known as “surrendering the lease”) or to pass it on to someone else (known as “assignment of the lease”) instead. 

If you do agree with your landlord that you will proceed with one of these options, we strongly advise that you get legal advice as it’s a good idea to sign new legal documents to confirm what you have decided. However, if your landlord does not agree to this, you will still be liable to pay the whole rental amount. 

If your business fails and you cannot pay the rent on your commercial lease, it might be an option to sublet your space to another company. You’ll need your landlord’s permission to do this, however. In this situation, you could continue to pay the rent until the lease ends by allowing another business to rent the property instead of you. They will pay you the rent and you will pay the landlord.

If you stop being able to pay the rent for the lease because your business fails for instance and you go into rent arrears, then your landlord could forfeit the lease if you have a forfeiture clause. This gives the landlord the right to take back control of the property and regain possession. Depending on whether you are happy with the forfeiture, this can be done amicably or you can go to court.

Overall, it is a good idea to contact a solicitor before you enter into a commercial lease contract. In the case that your business fails, you need to know that you have options on where you stand legally. 

At GloverPriest, we can provide the expertise, guidance, and negotiation skills necessary to ensure that your lease agreement is comprehensive, fair, and beneficial for your business.

From negotiating favourable lease terms to identifying potential risks and loopholes, GlovePriest is here for you. 

If you would like further advice on your commercial property, please don’t hesitate to speak to one of our expert commercial lease solicitors today. Complete our enquiry form.