Legal Issues to Prepare for When Relocating to a New Office
Deciding to move offices or your area of operations is a big step that needs a lot of preparation whether it’s due to economic reasons, a change in business direction, changes in your supply chain, client base, manpower or simply because your current lease is about to expire.
When You’ve Decided to Relocate
After completing the groundwork and reaching the conclusion that relocating elsewhere is the best way to proceed with your business strategy, it’s time to come up with a plan to move out smoothly from your existing office.
In breaking your lease, it’s important to consult your solicitor and go over the lease agreement together.
Review the contract to check if:
- It’s a fixed-term lease
- The lease has clauses regarding early termination, hardship, or subletting
- You or your landlord or the property owner has breached a fundamental term of the lease
Financial Consequences of Early Terminations
If you break your lease early or choose to end your lease before the terms of your contract, the owner or landlord can ask you to pay for their losses, including:
- Rent until the end of the fixed term or until new tenants move in, whichever happens first
- A break fee that can be worth six weeks’ rent
- Outgoings (including taxes, maintenance costs and so on)
- Advertising costs
- Subletting fees, such as agent’s fees
Your Legal Options When You Want to Break Your Lease Early
You can consider the following options if you’ve decided on an early lease termination:
Early Termination Clause
Although this isn’t a standard clause, you can negotiate this type of clause to be included in your lease contract. The break clause outlines the conditions allowing you as tenant to end your lease early.
Some landowners give specific dates as to when the early terminations can be done.
You can request for the surrender of your lease with the landlord or property owner before the expiry of your contract.
If they agree, you and your landlord must sign a deed of surrender, which will explicitly release you from obligations under your lease from the date of surrender.
Check the terms of your lease and relevant laws pertaining to lease assignment or transferring your obligations and rights to a new tenant.
In most cases, you need to have your landlord’s permission in finding a replacement tenant. If they grant permission, you and the property owner must sign one deed in relation to consent and another one on the assignment or transfer of the lease.
Subleasing/Subletting and Licensing
Check your lease contract if you can rent out the whole property (or part of it) to another tenant. Meanwhile, when you licence your premises, the other party doesn’t have exclusive use of the space. This could cover meeting rooms, reception desks, kitchens and printing areas.
You must get your landlord’s consent for this arrangement and sign an agreement to sublease or licence. Moreover, under both subleasing and licensing, you’ll still be legally responsible to the landlord for the whole lease even if the subtenant or licensee is responsible to you.
Next Steps to Take
After deciding on the action to take in relation to your lease based on your contract and legal options:
Talk to the property owner or landlord about your plan to end your lease, especially if it’s an early termination.
Express your request to surrender your lease or to avail of other options in your lease agreement if there’s any, including lease transfer.
Give the property owner as much time as possible.
The recommended lead time is no less than 14-days’ notice. This will help keep the good faith between you and your landlord and give them enough time to find a new tenant.
You can also offer to help find a new tenant. Presenting a potential tenant may encourage the landowner to agree with the lease termination.
Determine the extent of your make good obligations.
Do you need to return the leased space to what it was like when you first arrived? Or is an “office strip out” (completely bare) required? Who is responsible for the repair if there are any environmental or structural damage to the premises?
Strictly comply with all legal requirements in case you are ending a lease because of a breach.
Submit a formal document notifying your landlord of your intent to end your commercial lease and discuss outstanding payables.
Know when the landlord/property owner is expected to return the security deposit or bank guarantee.
Also determine if the landlord can withhold part or all of the guarantee if you fail to comply with obligations, whether it’s the remaining rent, make good obligations or repair.
Check and keep a record of how the landlord is advertising the property.
Is it being advertised online? Does the ad say it’s available at the earliest date possible? Is it being advertised for the same lease price?
Are you being charged for any advertising or subletting/subleasing costs?
You can negotiate for the fees to be paid on a pro rata basis. For example, if you have 50% of the lease left, you’ll pay 50% of the expenses. Ask for itemised invoices of expenses so you’re clear about what you’re actually paying for.
Tips for Signing a New Lease
Be aware of the following as you take on a new lease:
- Ensure that any heads of agreement (proposal) expressly states that it is not binding before the official lease is signed.
- Remove ratchet clauses from your contract. These provisions usually say that the rent/lease cost won’t go below the amount payable immediately before the review date when, in fact, a true market rent review should allow costs to either increase or decrease. Conduct your own research about office lease rates in the new location.
- Make sure the contract only makes you liable for claims arising from the premises, not for those caused by the property owner’s own negligence.
- Determine if you have to pay for outgoings and what types of outgoings will be payable.
- Check for options to extend the lease or to lease to a third party.
- Understand your make good obligations at the end of the lease.
For further advice, you can check the government’s guidelines on retail leasing or consult a legal real estate representative.