IN DIFFICULT trading conditions, tenants may struggle with the rent payment provisions of their leases.

A cost-effective approach would be to negotiate short-term concessions with the landlord. Unless tenants are dealing with a major plc, most landlords will only seek to terminate leases as a last resort, particularly following changes in the legislation on empty property rates relief.

Landlords are not keen to have empty property on their hands due to the liability to pay full rates on vacant properties. If tenants decide to sell or terminate their leases, common options include assignment, sub-letting or surrender.

Assignment involves the tenant transferring its lease to an assignee (the incoming tenant). If the lease permits assignments, it will usually specify conditions which must be satisfied.

Common examples include the need to obtain the landlord’s prior consent and that the tenant must act as guarantor for the assignee until the assignee transfers its interest in the lease.

The landlord can therefore take action against the tenant if the assignee defaults. Tenants should always satisfy themselves as to the financial sustainability of potential assignees before the assignment.

Sub-letting occurs when the tenant grants an underlease out of the tenant’s own lease with the landlord.

This is common when tenants are unable to find assignees. The tenant’s lease may contain restrictions on sub-letting, ie, the level of sub-rents which may be charged.

Sub-letting gives the tenant more control in that, if the sub-tenant’s actions put the tenant in breach of its own covenants in the main lease, the tenant can terminate the underlease. However, the tenant remains liable to pay the rent to the landlord.

Finally, the surrender of a lease involves the tenant terminating the lease with the landlord’s agreement. Surrenders should be negotiated to ensure that the tenant is released from past, present and future liability.

The landlord may seek a lump sum payment for agreeing to surrender.

The most appropriate option for tenants seeking to mitigate or terminate their liability under a lease will depend on the circumstances applicable to the individual tenant in question.