In certain situations, you may be able to break a commercial lease before its expiration date by using an early termination clause. You should use great care when attempting to terminate a commercial lease early because not all commercial leases will have this provision, putting you at risk of legal action. In this article, Commercial Lease Termination Clause, we take a look at the process and mechanism involved.
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Is it possible to terminate a commercial lease before the end of the tenancy?
There are numerous reasons, if you are a business owner, for you to consider terminating a commercial lease before its expiration date. For instance,
- You might not have enough money to make rent payments if your company is having financial difficulties.
- Your requirements are no longer being met by the property.
- You want to close your firm and start working on a new project.
It will probably be difficult to quit your commercial lease, for whatever reason you may have. Since it might be expensive and time-consuming to find new tenants, your landlord will be depending on your ongoing lease payments. Additionally, a vacant property results in revenue loss. For these reasons, the majority of landlords require that business lease agreements contain severe penalties for early termination.
In general, breaking a commercial lease early will result in consequences. There is only one exception, and that is if the lease has a break clause. A business lease is usually for a predetermined amount of time. If you have to dissolve your business, you will still be liable for the full amount owed under a fixed-term commercial lease.
Getting your landlord to consent to an early termination clause will be extremely difficult to achieve throughout the commercial lease negotiations. The landlord’s lender may veto the clause even if the landlord does agree.
You should adhere to specific guidelines if you are successful in obtaining an early termination clause. For example, the condition will normally not be enforceable until some time into the lease, and there will usually be a termination charge. Additionally, the landlord can ask you to pay for any of their costs, such as any renovations to the property.
You should carefully read over a commercial lease before signing it to be sure you understand all of the terms, including the potential for early termination.
What are the options for a landlord seeking early termination?
When it comes to terminating a lease early, a landlord and a tenant have some similar options. These include paying the tenant’s moving expenses, negotiating, and using a break clause. If a landlord wants to terminate the commercial lease before the end of the term, they also have another alternative.
If the fixed-term lease incorporates a forfeiture clause that permits you to lose the lease about the tenant’s breach, you might be able to terminate the agreement early.
How the tenant breached the terms of the lease will determine the forfeiture process. You usually don’t need to give the tenant notice if, for instance, they breached the lease by not paying the rent. If the breach is of a different type, you have to notify the parties by Section 146 of the Law of Property Act 1925.
You may physically re-enter the property and terminate the lease to trigger the forfeiture. But only if the tenant has left the property can this be done. You may file a possession lawsuit against the tenant if they continue to occupy the property based on a legitimate forfeiture.
Does the tenancy automatically terminate when a lease expires?
The Landlord and Tenant Act of 1954, which governs what is known as “security of tenure,” or a tenant’s right to occupy the premises after a lease expires, will determine whether or not any party may terminate a commercial lease on or after its term expires.
If the tenant continues to occupy the property after the lease’s term expires and it falls within the legal scope of the legislation, the lease will automatically renew. Here, the lease may be terminated by either the landlord or the tenant by delivering one of the mandatory notifications listed below:
Section 25 notice: Serving a Section 25 notice can stop the tenant from accepting a new lease if the landlord wants to determine the terms of the agreement and can prove one of the reasons listed in Section 30 of the Landlord and Tenant Act of 1954. The grounds include persistent delays in rent payments and a breach of repair requirements.
Section 26 notice: A tenant may provide notice under this section of the lease to end it. There will be no inherent right to security of tenure if the parties have chosen to opt out of the Act as part of the lease, and either party may terminate the agreement with no further notice. All that is required to terminate the lease is written notice from one party to the other.
How we can help
We have a proven track record of helping clients with commercial lease termination. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
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How to Contact Our Commercial Property Solicitors
You need to be well-informed about the issues and possible implications of a lease termination. However, expert legal support is crucial in terms of ensuring a positive outcome for your case.
To speak to our Commercial Property solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well-known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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