Downsizing or Expanding Your Office Space

Often our clients experience changes in their business that affect their current office space. Some companies have decided to proceed working remotely and instead of maintaining large office spaces, they now prefer smaller and easier to maintain offices. Other companies, on the other hand, are experiencing an unexpected increase in their workforce and are considering expanding their headquarters. In both cases, the question of whether or how to terminate your office lease becomes crucial and determines the next steps in your search for new premises. Terminating a commercial lease is not as simple as just walking away and handing the keys back to the landlord.

We have put together 5 STEPS that can help you understand the process of terminating your lease before it expires and act wisely.

1. Read & Understand Your Current Rent Agreement

Do not start looking for a new office until you have reviewed and understood your current lease agreement. Typically, commercial lease agreements in Malta last for five years, with a two-year di fermo period and a three-year di rispetto period. Di Fermo: the mandatory minimum period. Di Rispetto: the optional period after the expiry of the di fermo during which the tenant may terminate the lease with X months’ notice without penalty.

Understand the exact date on which the di fermo period ends or how much longer this period will take to expire. If the Di Fermo period has already expired, you should make an appointment with your landlord and inform them of your plans to move out.

2. Evaluate The Termination Clause In Your Rent Agreement

If your lease is still on Di Fermo and waiting for it to expire is not an option, you should look for a termination clause in your rental agreement. This clause should be an essential part of any commercial property lease and should be very specific about how termination is to be handled and what costs to expect if you decide to surrender your lease.

3. Meet Your Landlord And Discuss The Options.

Now, when you are well informed what your rent agreement allows or prohibits in the event of an early termination of the tenancy, you should arrange a meeting with your landlord. In this meeting, you should explain why you are considering termination and how you can work together to reach an agreement. However, if the landlord does not want to take the premises back (for example, because they cannot re-let them), they cannot be forced to do so. If the landlord refuses the termination, the rental agreement must remain in place.

4. Find a Replacement Tenant.

You may want to offer to find a replacement tenant and take care of the process. It could be that your real estate agent already has a company who’s looking for an office like yours and they would be happy to take it on the same terms you have in your contract. It is important to get your landlord’s consent to start proceedings and advertise the property on the market. You should expect to pay an agency fee to find a new tenant.

5. Consider Subletting Rather Terminating The Lease.

If your landlord is not willing to terminate the tenancy on the terms you proposed and finding a replacement does not feel right, you might consider subletting the premises to a subtenant (if your landlord accepts this option). This could also be a good option if you are downsizing your office but want to remain in the premises as a tenant, or if you want to split the rental costs. Subletting premises always requires the landlord’s consent.

Summary

The key element in early termination is communication between you, your estate agent and the current landlord. It is often beneficial for both parties to communicate the reason for the termination and find an amicable solution.
We always recommend having a trusted commercial real estate agent on your side, as these situations are not uncommon and an experienced agent can offer solutions you did not know existed.

Important Note: Commercial leases are generally governed by the Civil Code (Chapter 16 of the Laws of Malta). However, leases entered into before 1995 are governed by the Municipal Property Reletting Ordinance (Chapter 69 of the Laws of Malta).