Commercial Leases – Deeds of Surrender & Variation

In the world of commercial property and evolving business needs, lease agreements often need to be adjusted. There can be several circumstances that bring about the need to change an existing commercial lease such as business restructuring, relocation, or financial reasons.

Within the legal framework of commercial leases there is a deed of surrender and a deed of variation which enable parties to change the terms of their existing lease. It is essential that landlords and tenants understand these to make sure they are aware of their legal obligations.

Put simply, a deed of surrender is a formal agreement between a landlord and tenant to terminate a lease before its scheduled end date.

There are two different types of deed of surrender

• Express Surrender: Typically executed as a deed, it involves written agreement from both parties consenting to end the lease and provides clear terms. It is considered the simplest method and is often used to reduce disputes.
• Surrender by Operation of Law: This can be ambiguous and lead to legal uncertainties. However, if the actions of both parties implies that the lease has ended this may constitute a surrender by operation of law.

• Outstanding Obligations: Any pending responsibilities such as unpaid rent or repair obligations need to be addressed prior to surrendering.
• Landlord’s Consent: Landlords may not accept a surrender and may want to negotiate terms, which can include compensation or other conditions.
• Third-Party Consents: The deed of surrender may require you to obtain additional consent from any third parties (for example, if the property is mortgaged or has sub tenants).

A deed of variation allows landlords and tenants to make amendments to specific terms of their current lease without ending it. For small amendments, this flexibility is beneficial to accommodate any change in circumstances for either party.

• Rent: Changing the amount or payment schedule.
• Lease Term: Extending or shortening the length of the lease.
• Use of Premises: Modifying how the premises are used in line with the tenant’s business operations.
• Alterations and Repairs: Renegotiating the responsibilities for maintenance or repairs.

With any agreement, dependent on what you change, there are certain legal restrictions and implications involved. While deeds of variation are a convenient option to amend existing leases, you need to be aware of any changes that may trigger a “surrender and regrant” of the lease.

For example, if you want to extend the lease term or expand the leased premisses, this may be deemed as creating a new lease, which can have the following consequences:

• Loss of Security of Tenure: Tenants may forfeit protections under the Landlord and Tenant Act 1954.
• Stamp Duty Land Tax (SDLT): A new lease may result in additional tax liabilities.
• Registration Requirements: New leases may need to be registered with the Land Registry, incurring further costs and administration.

By carefully considering the legal and practical implications, landlords and tenants can make informed decisions that align with their business objectives. Get in touch with our commercial property experts for further advice and to discuss your situation.

Tel:       01245 893400
Email:  info@backhouse-solicitors.co.uk
Visit:    17 Duke Street, Chelmsford, CM1 1JU
Or send us a message through the Contact Us page on this website.