Exit Strategies for Business Tenants

Abstract

Adaptability is critical to success in business. Yet, many businesses in the UK occupy premises on fixed term leases, which run for several years, a feature that has great appeal to investors. However, during this time property requirements can change. This research critically examines the three main mechanisms by which tenants can bring their leases to an end, breaks, assignment and subletting. We examine the legal rules governing these devices and undertake analyses of lease data and interview and questionnaire surveys. The research finds that break clauses are an increasingly common exit mechanism agreed in the leases of office and industrial property tenants but are less frequent in retail markets. However they are not usually operated, raising questions about their purpose and timing. Breaks cannot give the more general flexibility of assignment and subletting, although these latter clauses are not often part of lease negotiations. Landlords have legitimate reasons for preventing some assignment and subletting but can be unnecessarily restrictive on some aspects. Addressing the disparate concerns of both sides of the landlord and tenant relationship on lease flexibility is a challenge to the property industry and to policy makers.