Options For Downsizing Your Office Premises

The first option is to sublet part or the whole of your office space. You need to check the terms of your lease to see whether subletting is permitted and the conditions. Most commercial leases will permit the tenant to grant an underlease of whole. Some leases may also permit underleases of part of the property, usually only if the spaces can be split into separate self-contained spaces. You would also need your landlord’s consent to the subletting (usually, they can’t unreasonably withhold consent).

Subletting is a good option if you want more flexibility in the short term; for example, you could grant a sublease shorter than the main lease and see whether you want to renew the sublease when it comes to an end or use the space yourself again. There are downsides to subletting, however. The tenant in the original lease will still be on the hook to pay the rent to the landlord. In practice, they will pass up the rent they receive from the subtenant, but they will not be released from complying with the tenant covenants.

The final option is to assign your lease to a third party, which will, of course, depend on you being able to find a third party who wants to take on your lease, which could be more difficult in the current climate. It will also be subject to the provisions in your lease and subject to the landlord’s approval (which usually can’t be unreasonably withheld).

Assignment clauses in commercial leases will often contain a provision which states that the landlord can refuse consent if they think the incoming tenant is not of sufficient financial standing to comply with the covenants in the lease. The provision is something to bear when searching for a third party to take the lease on.

Most leases will require the outgoing tenant to provide an authorised guarantee agreement, which guarantees the incoming tenant’s obligations. You will not be released from future liability under the lease. For example, you may be called on to cover the arrears of the new tenant if they are in default.