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What Can Charity Tenants Do If They No Longer Need Their Premises?

on Wednesday, 29 July 2020.

The Government's announcement may prompt charity tenants to re-evaluate their property needs and ask themselves whether they need the expensive office space they once occupied.

Given the sustained period that many charity employees have successfully worked from home, we expect to see many charities determine that their current leases are surplus to their requirements. We have set out the options available to charity tenants to bring their lease to an end or otherwise reduce their liabilities, at a time when there is likely to be significant financial pressure on the charity's resources.

Bringing the Lease to an End by Serving Notice or Vacating the Property at the End of the Contractual Term

If the contractual term of the lease has expired or is about to, a charity tenant may be able to bring the lease to an end by simply vacating on the expiry of the contractual term, or otherwise serving notice on its landlord. The required notice period will vary depending on the terms of the charity tenant's occupation. Charity tenants should check their lease to be sure about when the lease ends.

Exercising a Break Option

A charity tenant should check whether its lease contains an appropriate break clause. A break clause allows a landlord and/or tenant to terminate a lease early, usually by serving notice in advance of a specific date (known as the 'break date').

Some leases contain what is known as a 'rolling break', which entitle landlords/tenants to bring a lease to an end at any time on giving a specified period of notice.

Break clauses can vary significantly between leases, and so it is important for charity tenants to obtain proper advice before attempting to exercise any break rights. Many break clauses contain a list of conditions that tenants need to comply with in order for the break to be validly exercised - again, these can vary between leases and legal advice should be obtained to ensure compliance.

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Varying the Lease

A charity tenant may wish to approach its landlord with a view to agreeing a variation to its lease. Depending on the market conditions, a charity tenant may be able to negotiate a permanent rent concession and also vary the terms of payment.

Negotiating a Surrender

A landlord may be willing to agree to surrender a charity tenant's lease. This essentially means that both parties agree to bring the lease to an end. Whether or not a landlord would be willing to agree this will likely depend on, (a) its intentions for the property, and (b) its ability to re-let the property to another tenant in the current market conditions. The landlord may only agree to a surrender of the lease on payment of a premium.

Assignment

Depending on the terms of the lease, it may be possible for a charity tenant to assign the whole or part of the lease. It is normal for an assignment to be subject to obtaining the landlord's consent, such consent not to be unreasonably withheld or delayed.

The lease will often set out the circumstances in which the landlord is able to withhold consent without it being unreasonable, For example if, in the reasonable opinion of the landlord, there is a substantial breach of any of the tenant's covenants in the lease or the proposed assignee is not an acceptable assignee. The lease might also provide that the landlord can require the charity tenant to enter into an authorised guarantee agreement requiring the charity tenant to guarantee the lease obligations of the assignee.

Sub-Letting

The lease might also allow the charity tenant to sub-let either the whole or part of the property. It is normal for the lease to set out various requirements as to the terms of the sub-lease including a requirement for the landlord to give consent to the sub-letting.

If a charity tenant were to sub-let its property, it would still be liable to pay rent to the landlord but would look to recover the rent due from the sub-tenant. If the sub-tenant fails to pay the charity tenant, the landlord could still pursue the charity tenant in respect of any sums due.

Decision-Making by Charity Trustees

In deciding what course of action to take, the charity tenant's trustees are obliged to act in accordance with what they consider to be the best interests of the charity and to exercise reasonable care and skill in making their decision. It important to keep clear records of the decision-making process. In addition, the charity tenant must ensure it complies with any other requirements imposed under the Charities Acts.


For specialist legal advice on terminating or limiting liabilities in your lease, please contact Katie Hickman in our Real Estate team on 07557 528 936, or complete the form below.

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