26 February 2020

Can I end my commercial lease early?

For lease and leased sign on display outside a building

The short answer to this is “yes”. There are a variety of ways that a landlord, or a tenant, can terminate a commercial lease but not all methods will be available to all landlords or all tenants.

  • Break clause

Some leases will contain a break clause. Most break clauses will be “tenant only” but sometimes landlords, and sometimes both landlord and tenant, will have a break right. Occasionally, a break clause will only be in favour of the original tenant but not an assignee. Break clauses will contain detailed provisions which must be followed for the break notice to be effective. We strongly advise anyone wanting to exercise a break right to take legal advice in plenty of time. Bear in mind that, typically, six months’ notice is required, in which case legal advice should be sought about eight months before the break date.

  • Surrender

Both landlords and tenants are free, at any time, to ask the other if they would be willing to surrender the lease. Surrenders can only be effected by mutual agreement and financial consideration may be required. Leases can be surrendered by deed or by the actions of the parties.

  • Forfeiture

A landlord will often have a right to terminate the lease if the tenant is in breach of the lease or becomes insolvent. Landlords should be aware, however, that tenants can apply to the court for relief from forfeiture and this will usually be granted if the breach is rectified and not persistently repeated. Even if the breach is not remediable, the tenant may still obtain relief. Certain procedures need to be followed by landlords wanting to forfeit a lease and care must be taken not to waive a right to forfeit.

  • Disclaimer

If a tenant is insolvent, its trustee in bankruptcy or its liquidator can bring the lease to an end if they consider it to be a burden (provided the tenant is not a joint tenant). The disclaimer brings to an end the rights and obligations of the insolvent tenant. However, it does not release the landlord or a guarantor. Landlords do not have to take back disclaimed property but, if they do, the landlord can no longer pursue any third parties (e.g. guarantors) who may have obligations under the lease. Disclaimer of a headlease does not necessarily bring a subtenant’s occupation to an end and, if a superior landlord re-enters disclaimed property, a subtenant could apply for relief from forfeiture.

  • Landlord and Tenant Act 1954

The Act gives commercial tenants a statutory right to renew their lease when it expires. However, landlords can – if they satisfy certain requirements – refuse to renew a lease. Landlords can also require tenants to contract out of the Act before the lease is granted. This is not strictly a right to terminate a lease early but is nonetheless a means for a landlord to bring a relationship of landlord and tenant to an end.

  • Alienation

Usually, leases allow tenants to assign the lease and often they will allow tenants to sublet the premises. The right will usually be qualified and neither assignments nor subleases (also known as underleases) amount to a termination of the lease but they are both a means for a tenant to end, or at least minimise, its liabilities and obligations under the lease.

If you need advice on ending your lease early, contact our commercial property lawyer, Juliet Rayner, on 0208 549 5186.

 

The information on the Howell Jones website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representation or warranties, express or implied.

 

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