3 Tips for Commercial Tenants to Avoid Bankruptcy
In these times of economic uncertainty brought about by Brexit and news that the 2018 Christmas trading has been the quietest since the credit crunch (according to The Guardians report here), commercial tenants would be sensible to familiarise themselves with their commercial leases agreement as no doubt many businesses may close down and enter bankruptcy proceedings.
Early preparation should be done if tenants suspect that their businesses may struggle or face bankruptcy in the near future and need an exit strategy.
We would strongly advise that your commercial lease be reviewed by a solicitor experienced in handling commercial property matters, such as Kimat Singh at Kersey Solicitors with office in Ipswich and Colchester.
The key points to look for when considering exiting a lease are as follows:-
Does the Lease allow the tenant to sell (or assign) the lease to someone else or sublet the property? If this is permitted it will allow them to pass on the ongoing liability in the lease to a new tenant or by subletting bring in a new tenant to effectively pay the rent indirectly to the landlord.
It may not be feasible to find a successor if the business is struggling because of wider economic factors. The tenant may find that someone is willing however to purchase the lease if the business being carried out at the commercial property is being sold at a ‘knockdown discount’. Leases often contain conditions that will not allow the tenant to transfer the lease to anyone other than those whom the landlord first approves.
The effect of a break clause is to allow the tenant to terminate the lease without having to continue until the expiry of the fixed contractual term, effectively allowing a tenant to walk away early.
Tenants should be very cautious as if they fail to give the correct notice or comply with the conditions specified in the break clause provision in the commercial lease agreement, then the break notice may be held void and the tenant may therefore lose their opportunity to exit the lease and perhaps face bankruptcy.
Tenants should rely on their appointed solicitor to check the provisions in the lease well in advance of the period they wish to officially give notice to a landlord to ensure that they are compliant and that they do not miss their chance.
Unilateral agreement to a surrender
This is where the tenants and landlords agree mutually to surrender the lease, perhaps for a one off payment. Often the negotiated payment is a figure between the total amount the landlord would have received if the Lease expired at the end of the contractual term and an amount that he is willing to accept for an early surrender.
Tenants should speak to their solicitor as they can assist with negotiating the terms of a surrender.
Kerseys Solicitors have significant experience in acting for both commercial landlords and tenants and are able to advise on those terms that landlords are likely to accept in certain circumstances. Getting advice from solicitors in advance of making any formal decisions concerning the lease can minimise the risk of costly mistakes.
Kerseys Solicitors, Kimat Singh, Partner Solicitor with offices in Ipswich and Colchester.