Brexit and Commercial Lease Terminations – the possible implications
21 September 2018 by Leon Pascal
With 29 March 2019 looming and still no clear sign of a deal, both landlord and tenant clients have begun to ask what Brexit (in whatever form it takes) might mean for ending their commercial leases.
What is the current law on the termination of commercial leases?
There is no single law governing lease terminations and leases can generally be brought to an end in a variety of ways including:
- expiry of the fixed term (assuming that the lease is contracted out of the security of tenure provisions contained in Part II of the Landlord and Tenant Act 1954, or that the tenant does not wish to pursue a renewal lease in accordance with the 1954 Act);
- exercise of a break option if the lease contains a break clause;
- surrender of the lease by the tenant to the landlord by mutual agreement between the parties; and
- forfeiture of the lease by the landlord where the tenant is in default.
Will Brexit change the current law on the termination of commercial leases?
In short, it is unlikely that Brexit will change the current law governing lease terminations per se; some tenants may argue that a significant political event like Brexit has caused their lease to be frustrated. Frustration takes place when a serious event occurs which is both unexpected and beyond the control of the parties to a contract (here, the lease) which changes the nature of the contract so much that it would be unjust to continue with it. Neither party is deemed to be in default.
Frustration, however, is often applied as narrowly as possible by the courts and it is arguable from the perspective of a landlord that neither the EU referendum nor its outcome could be deemed completely unexpected. On balance, it seems therefore that frustration is unlikely to be a viable argument.
What can parties to a commercial lease do now in light of Brexit uncertainty?
Both landlords and tenants may like to conduct reviews of their existing leases to enable them to fully understand their options post-Brexit. Whilst termination may not be an available option in many cases, tenants can also consider the possibility of assigning, underletting or sharing occupation with third parties in accordance with the terms of their leases.
For landlords and tenants negotiating new or renewal leases now, it is important to bear in mind how Brexit could impact on their business and their reasons for entering into a lease of particular premises. Tenants will be keen to include provisions allowing them to terminate their lease (such as break options) should the need arise, or they may wish to take shorter-term leases until the full impact of Brexit becomes clearer.
How can Fisher Jones Greenwood assist?
We are able to offer both landlords and tenants a fixed-fee review of their existing lease or leases and advise on their post-Brexit options as mentioned above. We are happy to offer this service to new or existing clients.
In the context of negotiating new or renewal leases, we are always keen to understand the nature of our clients’ businesses and their reasons for entering into a particular transaction. By approaching all matters from this commercial perspective, this enables us to tailor our advice in light of Brexit uncertainty and provide well-rounded, practical advice.
If you would like to book an appointment with Leon to discuss your commercial property needs, please call him on 01206 700113 or email [email protected].
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