Offer back clauses
Offer back clauses

The following Property guidance note provides comprehensive and up to date legal information covering:

  • Offer back clauses
  • Advantages and disadvantages
  • Terms of the offer back clause
  • Are offer back clauses unreasonable?
  • Is the resulting agreement to surrender enforceable?
  • Law of Property (Miscellaneous Provisions) Act 1989, Section 2
  • Perpetuities
  • Can the tenant withdraw its offer before it is accepted?
  • Registration
  • SDLT

Offer back (sometimes known as surrender back) clauses oblige the tenant to offer to surrender the lease to the landlord as a pre-condition to the tenant’s right to assign and/or underlet. The right to assign/underlet only arises if the landlord declines the tenant’s offer. In substance it is a right of pre-emption (sometimes called a right of first refusal).

Advantages and disadvantages

Offer back clauses enable the landlord to veto any assignment/underletting and require the tenant to vacate the property. If the tenant is obliged to offer to surrender for no consideration, the landlord can take advantage of a rise in rents, by accepting the surrender and re-letting at the market rent. However, landlords should be warned that:

  1. the inclusion of an offer back clause may have an adverse impact at rent review (depending upon its terms), and

  2. if the tenant is a company, subject to the terms of the lease, it may be possible for the parties to circumvent the offer back clause by the assignee acquiring the shares of the tenant instead of taking an assignment of the lease

Offer back clauses can be disadvantageous to tenants because:

  1. the lease may be more difficult to market

  2. if the time periods for the operation of the offer back clause will take significant time to comply with, the tenant may