For tenant businesses that need to leave early
Surrender of Lease: Deed, Premium and Dilapidations
Sviatoslav JerdetchiiCEO & Founder of Craftex. Updated , 5 min read
The short answer
A surrender of lease ends a commercial lease early by agreement between landlord and tenant. Unlike a break clause it needs the landlord's consent, usually comes with a payment, and can settle the dilapidations in the same deal.
- An express surrender is made by deed; a surrender can also happen by operation of law.
- The landlord usually asks for a premium; the dilapidations are often priced into it.
- Agree in the deed whether the dilapidations are released, paid in cash or done as works.
- Allow time for valuation, negotiation, the deed and the strip-out before the date.
A surrender of lease ends a commercial lease early by agreement. The tenant hands the lease back, the landlord accepts it, and both walk away on terms they negotiate. It is the usual route out when there is no break clause, or the break date is too far off.
Because the landlord has to agree, a surrender is a negotiation. The landlord will usually want a payment. The dilapidations are often the biggest number hidden inside it.
This guide explains how a surrender works, how the premium is set and how to deal with the dilapidations in the same deal. It is written by builders, not lawyers. We handle tenant dilapidations from the first figure to the handback. Negotiating now? Price your exit.
Surrender by deed or by operation of law
There are two ways a lease can be surrendered.
Express surrender by deed
Most commercial surrenders are express. The landlord and tenant sign a deed of surrender, prepared by their solicitors. Section 52 of the Law of Property Act 1925 requires a deed to convey an interest in land. A surrender of a legal lease is one.
The deed sets the date, any premium, and what each side is released from. It is the document that matters most, so read the release wording with care.
Surrender by operation of law
A surrender can also happen without a deed. Section 52 makes an exception for surrenders by operation of law. These arise from conduct, where both sides act in a way that only makes sense if the lease has ended.
The classic example is a tenant handing back the keys and the landlord accepting them and re-letting. Relying on this is risky. It can leave arguments about rent, dates and dilapidations unresolved. A deed is cleaner.
Deed of surrender: what it is and what it costs
A deed of surrender is the document that ends the lease. Both sides sign it, and it takes effect on the date it sets. It usually covers:
- the surrender date and the return of the keys;
- any premium, and when it is paid;
- the release of each side from future obligations;
- how the dilapidations are dealt with;
- what happens to any rent paid in advance and the rent deposit.
The cost of a deed is mostly legal fees. Each side instructs a solicitor, and landlords often ask the tenant to pay their legal and surveyor's costs too. Agree that point early, in writing.
Surrender and regrant
Sometimes a lease is surrendered so a new one can be granted at once. That happens when the parties agree to change something fundamental, such as extending the term or adding space. The law treats that as a surrender and regrant, even if nobody intended it. Your solicitor will spot it.
Dilapidations in a surrender
A surrender is the one moment the dilapidations can be closed for good. The deed can deal with them in three main ways.
- Full release. The landlord releases the tenant from all claims, including dilapidations, usually in return for the premium.
- Cash in the deal. The premium includes an agreed sum for the dilapidations, and the landlord does any works.
- Works before the date. The tenant carries out agreed works before the surrender date, and the deed releases the rest.
| Option | Suits a tenant who | Watch for |
|---|---|---|
| Full release | Wants certainty and a clean exit | A release that misses some claims |
| Cash in the deal | Has little time or access left | A sum based on untested rates |
| Works before the date | Has time and access before leaving | Works overrunning the surrender date |
Whichever you choose, get the works priced first. Our own RICS-qualified quantity surveyor reviews the landlord's schedule and prices it line by line. Our own crews can then do the works, so you can compare cash against the real cost of building.
Made a full refurbishment and redesign of our Central London office. Fantastic work, quality service and reliable people. Can recommend it to everybody
Surrender when you downsize
Many surrenders happen because a business has outgrown, or shrunk out of, its premises. The space is too big, too costly or in the wrong place.
Downsizing adds a second question to the surrender: what comes with you? Partitions, furniture, lighting, kitchens, racking and equipment can often be moved to the new premises or resold, not skipped.
Drake's is a good example. Its warehouse had become too big and too costly, so it moved into a 500 sq m railway arch in Bethnal Green. We carried out the dilapidation works at the old warehouse and the full move. The Drake's case study shows how the new space was built for a short lease.
One team, one point of contact: no surveyor, solicitor and three contractors to juggle on top of the move.
The steps and timetable
A surrender takes longer than most tenants expect. Allow several months from first approach to keys.
- Read the lease. Check for a break clause, the alienation terms and any rent review. A break may be cheaper than a surrender.
- Price the dilapidations. Get the works priced against what the lease really asks, before any figure is offered.
- Approach the landlord. Usually through your agent or solicitor, with a clear proposal and a date.
- Negotiate the premium and the release. Agree the sum, what it covers and what is released.
- Complete the deed. Solicitors draft and exchange the deed of surrender.
- Clear and hand back. Strip out what must go, move what you keep and return every key on the date.
If a break date is close, compare both routes with your solicitor. Our guide to the lease break clause explains the conditions a break must meet. Want the dilapidations priced first? Price your exit.
Before you agree a surrender
- Check the lease for a break clause first.
- Get the dilapidations priced line by line.
- Ask the landlord about its plans for the building.
- Agree what the premium covers, item by item.
- Read the release wording in the deed.
- Plan the strip-out and the move to finish before the date.
