Moving out of your leased premises might seem simple enough, but in reality, it requires careful planning and execution. If you don’t get it right, you may end up facing costly disputes with your former landlord and continuing obligations even after you have left.
To help you avoid any legal risks and exposure, our business dispute solicitors explain how you should prepare for vacant possession, how to provide vacant possession and your legal options if you are involved in a dispute with your landlord.
Contents:
- Why is vacant possession important to commercial tenants?
- How should I prepare for vacant possession?
- How do I provide vacant possession at the end of the lease?
- Do I have to fully vacate the property by the lease end date?
- What are the risks if you don’t provide vacant possession?
- Are there any penalties or fees for leaving the property before the lease term ends?
- Can my landlord enter the property to make sure the property is vacated?
- What happens if I do not provide vacant possession?
- Can I be held liable for damages if I fail to return the property in the required condition?
- What are your legal options if you are involved in a dispute with your landlord?
- Summary
Why is vacant possession important to commercial tenants?
Vacant possession is important to you as a commercial tenant because you want to relocate smoothly with no ongoing obligations tied to your former premises. To do this, you must make sure you comply with all relevant exit obligations in your lease. Vacant possession doesn’t just mean emptying the premises and handing the keys over. It may involve returning the property in the original condition it was let to you – including reinstating any changes or instalments (even those approved by your landlord in the first place) as well as making any repairs.
Tenants shouldn’t be put off adapting leased premises to suit your unique business operations – whether that’s equipment, inventory, or layout. What you must do, however, is ensure your landlord isn’t prevented from the use and enjoyment of his premises when returned to them. How you do that will, as always, depend on the terms of your lease.
How should I prepare for vacant possession?
Vacating a leased premises isn’t something that should be left to the last minute. Whether you are leaving because the lease has naturally come to an end by expiry or because you have exercised a right to terminate early - you need to plan your departure. There are some general steps like notifying clients of the intended change in address, making arrangements to redirect post, taking meter readings, and all the things you would normally do as if you were moving house. In preparation for facilitating smooth and legally compliant vacant possession, we would suggest the following:
Review the lease: The best way to start is by carefully reviewing the terms of your lease (or have a commercial property solicitor do this for you). Carefully read through your lease to understand the exact terms for notice periods, the required condition of the property, associated repairs and reinstatement works, and any potential liabilities for non-compliance.
Liaise with your landlord: Confirm your intention to leave with your landlord and move-out date. It is important that you provide any notice within the required timeframes and correct method as per your lease. Also, obtain any approvals or licences necessary. This might include decorating the premises to the standard expected by the landlord or obtaining a licence to assign if that’s your mode of exit.
Assess the property’s condition: Conduct a thorough inspection of the property to identify any necessary repairs, maintenance, or redecoration needed to comply with the lease terms. Failure to do so can result in protracted and costly dilapidation claims.
Remove belongings: Everything from your equipment and furniture items down to rubbish / waste is your responsibility. Arranging the safe collection, removal, disposal, relocation, and general clearance of your ‘stuff’ in advance is crucial so that there is no risk of any last minute delays or leftover. Unless otherwise agreed with your landlord, make sure you empty the property of your trade fixtures.
How do I provide vacant possession at the end of the lease?
Typically, there will be a clause dedicated to returning the property to the landlord when the lease comes to an end (often known as ‘yielding up’). The clause is often phrased so that you must deliver up the property with vacant possession and in the repair / condition required by the lease. A break clause will also typically include a requirement for the tenant to provide vacant possession (which is implied anyway under its obligations to perform the tenant covenants in the lease, including the yield-up covenant).
Vacant possession isn’t always as straightforward as it seems. One would imagine it involves emptying the property so the landlord (or incoming next tenant) can occupy with no hinderance. Unfortunately, vacant possession has been the source of many disputes between tenants and landlords in court.
For example, when a tenant left behind business equipment (such as computer screens and a photocopier), they were deemed to have abandoned the premises while continuing to use it for storage. In another scenario, a tenant who had failed to remove demountable partitioning rendered a break notice ineffective (where vacant possession was a condition of exercising the break, as is often the case in modern leases). In both cases, the leases continued, as did the tenant’s obligation to pay rent. To add another layer of complexity to the mix, tenants have found themselves in court accused of doing too much and handing back an empty shell which the landlord couldn’t occupy or relet easily. Fortunately, because the break clause in that lease was not conditional upon the repair / physical condition of ‘the premises’ – the tenant was found to have given vacant possession.
The bottom line is, if you misunderstand and fail to meet your exit obligations, there can be costly consequences. With the potential risks and uncertainties involved, many tenants now negotiate less onerous definitions of vacant possession in leases, especially when it comes to break clauses. For example, if vacant possession is defined as “vacating the premises by the tenant and any other occupiers” – this is focused on handing back the property free from people and may be easier to demonstrate.
Do I have to fully vacate the property by the lease end date?
If your lease is protected and automatically continues after the initial contractual term expires, then no. You do not have to hand over vacant possession until and unless either you or the landlord take steps to end the lease.
If your lease is for a fixed term and not protected, then yes you do need to hand over vacant possession on the exact date it expires. Unlike protected leases, those without security of tenure give tenants no right to stay in the property beyond the fixed term. This means the landlord can expect vacant possession at the end of the lease regardless of whether you wish to stay. That said, you could always approach your landlord and try to negotiate an extension, new lease, or later move-out date, but it is entirely at their discretion. We would strongly advise consulting with an experienced commercial property solicitor to ensure any changes agreed are legally sound and documented correctly to avoid any pitfalls.
What are the risks if you don’t provide vacant possession?
Trespass and eviction: If you have not vacated the property (either after an unprotected lease expires or notice has been given for you to leave by the landlord under the relevant procedures for protected tenancies), you are technically trespassing. The landlord can take court action to evict you or peaceably renter the property to change the locks if possible.
Continued lease and liabilities: If you don’t fully vacate the property when trying to exercise a break clause, the lease might not end at all. You will then be liable to continue to pay rent for the rest of the lease term or until the next break date – which may be a few years away.
Costs of removal: If you have left the premises but not given back vacant possession and all that it entails, for example by leaving items or rubbish behind – your landlord may be able to claim the costs of removing, disposing, and/ or storing these items from you.
Costs of works and dilapidation claims: If you have not cleaned, repaired, reinstated, or redecorated the premises as required by the lease when returning the property, your landlord could claim compensation for the costs of carrying out these works. It is better you do these yourself to manage / minimise the costs, instead of leaving it to the landlord to bring a claim for dilapidations. These can be lengthy and costly proceedings, which not only cover the costs of repairs but can also extend to financial losses.
Are there any penalties or fees for leaving the property before the lease term ends?
Sadly, yes. Unless you have a very understanding landlord who is willing to accommodate you, the costs of an early exit can easily mount up including:
- Liability to pay rent (including service charges and other outgoings) for the entire lease term, unless you or the landlord are able to find a replacement tenant quickly
- Paying a lump sum or premium to effectively ‘surrender’ the lease back to the landlord, if he is willing to formally accept this
- Loss of any security deposit paid at the start of the lease to cover the landlord’s losses for early termination
- Legal fees and compensation for any ensuing disputes or claims that may arise after leaving early including costs of repairs if the property isn’t left in the required condition and other financial losses incurred by the landlord for breach of lease
Can my landlord enter the property to make sure the property is vacated?
You should consult your commercial lease to see what specific rights your landlord has about entry. Landlords usually reserve the right to inspect the premises, but with prior reasonable notice (except in the case of emergencies). It is probably beneficial for you to accommodate any requests for inspection to obtain confirmation they are happy that the property has been or is being properly vacated. This may help avoid any disputes further down the line. If the lease term has ended and you haven’t vacated the property, your landlord can potentially peaceably enter the property (ie without force) and change the locks – but this might be difficult if tenants are still in occupation. In most cases, landlords apply to the court to start eviction proceedings.
What happens if I do not provide vacant possession?
If the end date is fast approaching and you need to vacate but can’t meet all the requirements, seek advice form an experienced commercial property solicitor quickly. We can review the terms of your lease, help you understand the potential liabilities and consequences, and try to negotiate potential solutions or request an extension with your landlord. If they don’t agree, sadly there is very little you can do other than try to mitigate your losses. Depending on the extent of the issue – this might just end up being payment of the costs of your landlord clearing out your belongings, but could also mean hefty dilapidation claims. If failing to vacate properly results in a break clause being invalid, you could always try to assign the rest of the lease term to another tenant to allow you to exit but keep the landlord happy with continued rent (although you will need their approval to the assignment in the first place most likely).
Can I be held liable for damages if I fail to return the property in the required condition?
The simple and sad answer is yes, very likely. Most tenants are responsible for repairs and maintenance in a commercial lease. The extent of repairs and whether you, the landlord (or even insurers for damages insured) are responsible will all depend on what has been agreed in the lease. You can try to limit your liability by agreeing on a schedule of condition to keep the property in the same state it was in at the start of the lease. This means the landlord can’t go around claiming the cost of items that were already in disrepair. For any unresolved issues that are your responsibility, the landlord may issue a schedule listing all items of disrepair. At this point, they are unlikely to expect you to carry out the works, but instead want payment in lieu together with costs of lost rent for the period in which repairs are taking place. Often, landlords come in with a high figure which can be shocking to tenants.
What are your legal options if you are involved in a dispute with your landlord?
If you are facing a dispute with your landlord about vacant possession, the condition of the property, or any exit obligations – that doesn’t always mean you end up in court. The lease may contain dispute resolution procedures to follow. In any event, it is always best to consult with an experienced commercial property disputes solicitor to understand the strength of your legal position and what options are available to resolve matters. We can help you with a tiered approach depending on your unique circumstances, including;
- Negotiation: We can approach your landlord or their solicitors on your behalf to attempt to resolve the dispute through direct communication and negotiations. This is the least expensive and stressful way to handle matters and can be fruitful if both parties are willing to engage and compromise.
- Mediation: Sometimes you need to take things a step further and get a neutral third party involved to help both sides reach a mutually acceptable solution. Outcomes of mediation are not usually legally binding, but can be a cost-effective way to resolve disputes.
- Arbitration: This is a more formal process but less costly than full blown litigation. Conducted in a private setting, this involves an appointed arbitrator with expertise of the issues at hand hearing both sides and ruling a binding decision.
- Litigation: For complex matters where parties are at complete loggerheads and the stakes are high, litigation may be necessary as a last resort.
Summary
Commercial tenants have enough to deal with when it comes to moving business operations – including relocating equipment, inventory, and staff. On top of that, worrying about the legal risks of not vacating the property validly and being tied to ongoing obligations is the last thing you need. Fortunately, our skilled and experienced commercial property team are here to help. When it comes to getting things right, work begins right at the start – ensuring your lease is drafted and negotiated in a way that isn’t onerous, especially when it comes to obligations on exit. If disputes do arise, you can rely on us for legal representation and tailored advice so that you can move on with confidence.
