Offer back clauses: what to consider and avoid when negotiating

The first step is determining when the obligation to “offer back” the lease is triggered.

Usually, the trigger event is an assignment of the lease. However, landlords may broaden this to include:

• underletting;
• sharing occupation; or
• a change of control in the tenant (for example, through a share transfer, merger, or acquisition).

Landlords generally prefer broad triggers to maintain control and prevent tenants from bypassing the clause, while tenants aim to limit trigger events to preserve flexibility.

If a lease permits assignment, underletting or sharing of part only, landlords may also wish to capture disposals of part, though these are uncommon in commercial leases.

Both parties should carefully negotiate the trigger points to ensure they align with their respective interests.

A trigger event activates a series of notices between landlord and tenant.

The two key notices are:

1. Tenant’s offer notice – served by the tenant, offering the property back to the landlord and setting out the proposed disposal terms (e.g. assignment details, proposed assignee, and any premium payable).
2. Landlord’s counter notice – served by the landlord in response, confirming whether it accepts or rejects the tenant’s offer.

When negotiating notice provisions, the following points should be considered:

Method of service 

• Must notices be “in writing”?
• Do electronic communications qualify(fax/email)?
• To whom and where must notices be sent?
• Must third parties be notified (e.g. the landlord’s agents or solicitors)?

Landlords often prefer a strict, formal process, while tenants benefit from a more flexible approach to avoid invalid notices.

Both parties should also review the general notice provisions in the lease, as these may govern offer back notices.

Timings

After receiving the Tenant’s Offer Notice, the landlord has a fixed acceptance period to respond. Landlords typically want a longer period to assess the offer against budgets, estate management plans, and potential alternative tenants. Tenants, however, prefer a shorter timeframe to avoid continued rent liability and the risk of losing a prospective assignee.

Price

The Tenant’s Offer Notice often refers to a premium (or reverse premium) payable in the proposed assignment. If the landlord accepts the offer, it must usually match this premium.

Landlords will want to ensure the premium reflects true market value, often including assumptions such as 1) the transaction is at arm’s length between a willing buyer and seller, and 2) no value is attributed to goodwill. Tenants, conversely, will want to ensure the price reflects full value, including goodwill, to avoid surrendering at an undervalue.

Both parties should obtain advice from a valuation surveyor during negotiations.

a) Silence: if the landlord fails to respond within the acceptance period, should silence be deemed a rejection? Any prudent tenant will want silence to constitute rejection to avoid delay.

b) Rejection: if the landlord rejects the offer, can the tenant proceed with the disposal within a set timeframe? If the disposal terms later change, landlords typically require a new Tenant’s Offer Notice to prevent circumvention.

c) Acceptance: if the landlord accepts the offer via a Counter Notice, both parties must enter into an agreement for surrender. Key issues include:

• Terms: must the property be surrendered with vacant possession? What if a third party occupies the premises? Third-party occupation can affect valuation.
• Releases: will both parties be released from all liabilities or only future ones? Landlords often require tenants to remain liable for past breaches.
• Costs and form: who pays the legal and surveyor costs? Will a form of surrender be annexed to the lease, or negotiated later?
• Registration: who will handle registration of the surrender?

a) Rent review. Should the offer back clause be disregarded at rent review? Both parties should discuss the potential impact with a rent review surveyor.

b) Landlord and Tenant Act 1954 (“the 1954 Act”). Under the 1954 Act, tenants have a statutory right to renew their lease. In the case of Allnatt London Properties Ltd v Newton [1984] 1 All ER 423, the court held that an agreement to surrender arising from an offer back clause in a protected lease could be void under section 38(1) of the 1954 Act, as a tenant’s renewal rights cannot be waived unless proper statutory procedures are followed.

The precise point at which a tenant becomes contractually bound to surrender (on acceptance or at lease grant) remains uncertain. This uncertainty remains an important consideration for both landlords and tenants when negotiating surrender provisions within offer back clauses. Both parties are therefore strongly advised to seek legal advice when drafting or agreeing these provisions.

c) Wider transactions. If the property forms part of a larger sale or franchise arrangement, the parties should consider how offer back clauses will affect the overall deal.

d) Consents. Are any third-party consents (e.g. lender’s consent) required for a surrender? If so, this may have additional implications on completing the surrender.

e) Tax. There may be VAT or SDLT implications where a premium is paid. Both landlords and tenants should obtain specialist tax advice.

Offer back clauses require careful drafting and negotiation, as the clause can have implications if not drafted correctly.

Landlords will want broad provisions (covering timings, triggers, and surrender terms) to maximise control. Tenants will seek narrower, more flexible terms to avoid commercial restriction.

Ultimately, the goal should be to strike a fair balance: landlords maintain control over their asset, while tenants retain flexibility to deal with their premises as business needs evolve.

Philip Lardner is an associate in the real estate, planning and construction team. He has experience in acting for retail clients and has advised on a wide range of property transactions including commercial and residential acquisitions and disposals, and landlord & tenant matters. He also has experience in property management.