Over the course of the Covid-19 pandemic a number of occupiers have been considering their office requirements, as agile working has seen the way they use their existing space change. Consequently, some will chose to exercise options to determine their lease. This essentially gives the tenant the right to break their lease as long as certain conditions are met.

It is important to note that this is not the same as requesting an early surrender, which would be at the landlord's own discretion and on their terms.

So what does exercising these options entail?

First and foremost, the option to determine means an expressed right within a lease that enables one of the parties to terminate it on a specified date. These are conditional on what is stipulated in the lease and if these conditions are not met, the lease break will fail.

The most simple condition could be that the occupier would serve notice for a specific period of time. However, in addition, there may be requirements to pay a premium cost or rent for this timeframe and give vacant possession. Complying with specified or all lease obligations is another potential condition – this can be particularly onerous and is frequently challenged by landlords who would much rather the occupier stays put. 

What’s clear is that this is not a straight forward process and sufficient consideration should be given to identifying these conditions, as well as making sure there is enough time for them be met. Ultimately, these conditions are absolute and if not complied with will mean that the break will fail. This failure will mean that the lease continues along with the associated financial and practical obligations.

In many instances, going ahead with an option to determine goes beyond the usual dilapidations responsibilities and instead can become an exercise in risk management. For example, what will it cost to comply and what are the risks of not complying compared to the cost of potentially not exercising the break?

The pandemic has undoubtedly led to a number of knee-jerk reactions by occupiers considering their space requirements. However proper deliberation and sufficient time must be taken when making this kind of decision. Options to determine are very much time critical, we are talking months not weeks, and insufficient planning is likely to lead to a failed break.

Further information

Contact Edward Shaw

Savills FiT: Adapt, Evolve, Improve