Leaving a property early
Before you surrender the property
If you wish to leave your rented premises before the end of your lease agreement there are a number of things you may need to be aware of.
Unless your lease includes a break clause entitling one or either party to terminate early by notice, a lease will normally run for the whole term for which it is granted. However, there is nothing to stop the parties agreeing that a lease should be brought to an end early by the tenant surrendering its interest in the premises.
In order for this agreement to be reached the commercial deal behind a surrender will be determined by both the state of the market and on the position of the particular parties.
Depending on which party wishes to leave the agreement early, a surrender may involve a payment by the landlord to the tenant, or by the tenant to the landlord (known as a reverse surrender).
It is also useful to know that VAT may or may not be payable on a surrender or reverse surrender, depending on whether the recipient of the payment has exercised the “option to tax” and stamp duty land tax (SDLT) will be payable if the landlord pays more than £150,000 to the tenant.
On a surrender, there will often be negotiations about the tenant’s repair obligations. Invariably, these negotiations on the terminal dilapidations come down to money. Provided the deal is properly structured, any compensation paid to the landlord by the tenant will be treated as a payment of damages and will not be liable to VAT or SDLT.