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Terminating a Commercial Lease
There is a common misconception among Tenants occupying commercial premises under a lease that the premises can be handed back whenever they decide they no longer want to occupy them. Some Landlords are also under the impression that they can terminate a lease as and when they choose. Both of these views are incorrect. A lease is a contractual agreement between a Tenant and a Landlord and will last for a fixed period of time. Although some leases will include a clause that allows for early determination, most will run until they end by ‘effluxion of time’. However, there are ways to end a commercial lease early, and these processes will differ depending on who wishes to terminate the lease – the Landlord or Tenant – and under what circumstances and when. Both parties will need to be aware of their legal obligations. To speak to a solicitor about terminating a commercial lease, get in touch with us today by calling 0345 901 0445, or complete our online enquiry form and we will get back to you.
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Reasons for Terminating During a Lease
There are a number of reasons why a Landlord or Tenant may want to end a commercial lease early. In any event, and notwithstanding the reason, there are steps that must be taken in order to ensure that the lease can be determined. Below we outline the reasons and the complications that can arise.
Surrender
A Tenant who wishes to give up possession of a property during the fixed term of a lease can negotiate a surrender with their Landlord and effect it by:
- Deed
- Conduct
Conduct would include delivering the keys to the Landlord and the Landlord accepting receipt so that the lease comes to an end. However, both options would require the Landlord to agree to the Tenant surrendering the lease. The Landlord may also ask for a payment to be made as ‘compensation’ for the loss of rental income. Similarly, if the Landlord wishes to determine a commercial lease early, it can ask the Tenant for a surrender. In this instance, the Tenant is not obliged to agree and may accept to surrender upon payment of a premium.
Break clauses
A break clause is written into the commercial lease from the outset and allows a Tenant (and even a Landlord) to end a lease early by serving a notice on the other party. The lease will set out certain requirements that must be followed to ensure the break is valid, for example, the Tenant may be required to give the Landlord notice that they wish to enact the break clause, and all outstanding monies due must be paid. On the other hand, a Tenant may find that the preconditions set by the Landlord mean that the break clause is, in reality, incapable of being exercised.
Forfeiture
If a Landlord wishes to end a fixed-term commercial lease early due to a Tenant breaching the lease, then they may be able to do so if there is a forfeiture clause in the lease. The procedure for forfeiture will depend on how the Tenant has breached the lease. For example, if the Tenant has not paid rent, then there is generally no need for the Landlord to serve notice on the Tenant. If the breach is of a different nature, then the landlord will have to serve a section 146 notice.
Terminating After The Lease Has Expired
Ending a commercial lease on or after the expiration of its term depends on the security of tenure. Security of tenure is the right for the Tenant to occupy business property after the lease comes to an end. If the lease grants security of tenure, the lease will continue after the expiry date if the Tenant remains in occupation of the property for business purposes. In this scenario the Landlord or Tenant must serve one of the following notices to terminate the lease:
- Section 25 notice – if the Landlord wishes to determine the lease and can satisfy one of the grounds in section 30 of the Landlord and Tenant Act 1954, serving a hostile section 25 notice will prevent the Tenant from taking a new lease. Examples of grounds under the Act include breaching repairing obligations, persistent delays in paying rent or the Landlord redeveloping the property.
- Section 26 notice – if the Tenant wants to terminate the lease, a section 26 notice can be served.
If both parties opt out of the legislation as part of the lease, there is no automatic right to security of tenure. Under these circumstances, a Tenant can vacate the property without providing notice by informing the other by writing. If a Tenant refuses to vacate the property, the Landlord will usually need to undertake possession proceedings.
Contact us
Our team is well experienced in helping landlords and tenants to terminate commercial leases before or after the expiration date. We will make you aware of your legal options and provide advice on the best resolution should any disputes arise. For help terminating a commercial lease, get in touch with us today. Simply call us on 0345 901 0445, or complete our online enquiry form on this page to allow a member of our team to contact you. We offer our services to Cheshire, Manchester and London residents, as well as throughout the rest of the UK.
