Terminating Leaseholds

Terminating Leaseholds

Despite common misconceptions, leases are a contractual agreement and both parties should be aware of their legal obligations, especially when looking to terminate a lease.

Whatever the reason, whether you are a landlord or commercial tenant, there are many procedures if a commercial lease needs terminating early:

Surrender

When a tenant wishes to give up possession of a property during a fixed term lease, they can negotiate a surrender with the landlord and effect it either by:

  • Deed; or
  • Conduct, i.e. delivery of the keys by the tenant and acceptance of them by the landlord.

Both options require the landlord to agree to the tenant surrendering the lease and may ask for ‘compensation’ for the loss of rental income.

Likewise, a landlord can also ask the tenant for a surrender. However, in this instance, the tenant is not obliged to agree and may ask for a payment of a premium in order to surrender.

Forfeiture

In the event that a landlord wishes to terminate a fixed-term lease early because the tenant has breached the lease, they may be able to forfeit the lease. This option is only possible if:

  • The lease contains a forfeiture clause; and
  • The forfeiture clause allows the landlord to forfeit the lease in respect of a breach

This will also depend on the nature of the tenant’s breach. For example, if the tenant has not paid rent, then generally there is no need for the landlord to serve notice. If the breach is different in nature, the landlord can serve a section 146 notice.

Break clauses

A break clause is written into the commercial lease from the start and allows a tenant and/or landlord to end the lease before the expiration of the fixed term by serving notice on the other party. There are certain requirements that must be followed to ensure the break is valid, e.g. the tenant may be required to give the landlord notice before enacting the break clause.

Terminating a lease after it has expired

Whether you can end a commercial lease on or after the fixed-term has ended depends on the ‘security of tenure’ – the right of a tenant to occupy a property after the lease expires.

It the lease comes within the scope of this, it will automatically continue and the tenant or landlord can terminate the lease by serving either a Section 25 or Section 26 notice.

If the lease is out the ‘security of tenure’ legislation, there is no automatic right for the lease to continue. This means that both the tenant and landlord can quit the tenancy with no notice needed.

If you need advice on terminating your lease before or after the fixed-term expiration date, our solicitors are on hand to give you the legal advice you require, as well as offering support should any disputes arise.