Commercial Property Article
20 September, 2017
There are various ways in which a lease can be brought to an end. The appropriate method to use will vary dependent upon whether the lease term has passed. We will consider the different options available prior to the expiry of the existing lease in turn below.
Is there a break clause?
It may be possible to terminate the lease before the end of a fixed period, this option would only be available if the lease contains what is known as a break clause. A break clause may come in different forms, such as a rolling break which means that a lease can be terminated at any time. The lease may be terminated after a specified date or the lease may be terminated on an agreed fixed date. It is important to know which type of break clause is within the lease to ensure sufficient notice is given to the landlord.
In order to exercise the break clause effectively notice must be served in the prescribed form and within the relevant time as specified in the lease, before the break date has passed and served on the correct person. The Lease may specify a date on or before which the break notice must be served, if the deadline is not met then the right to break the lease will be lost and the lease will continue until the end of the term.
Often there are pre-conditions that need to be satisfied to successfully exercise a break clause such as the tenant must be up to date with their rent payments, must have performed all of their covenants, must not be in material breach of their repairing covenants, must give up occupation and leave behind no continuing subleases. If there has been a breach of a covenant then the right to break may be lost. The break clause will specify whether the conditions must be satisfied at the date of service of the break notice or at the break date, or both.
It is important to bear in mind whether the break clause imposes a condition that the tenant pays a penalty to the landlord when exercising the break clause, such as payment of 3 months' rent.
Can the Lease be Assigned/ Sublet?
In some circumstances the tenant may be able to sub-let their lease to a third party, whether this is permitted will be stated in the lease and if so conditions may be attached to this right. It may also be possible for the tenant to assign their lease to a third party and in doing so the tenant will dispose of their liabilities under the lease. In some circumstances the Assignee may need to pay a premium to acquire the Lease or the original tenant may be forced to contribute to the Assignee's rent for the remainder of the lease term. In addition, if the value of the lease has declined since it was first signed then the original tenant may be liable to pay a 'reverse premium'.
Deed of Surrender
If the above options are not viable then the next step which you should take is to contact your landlord and determine whether they are prepared to agree to terminate the lease. The lease can only be terminated early if the landlord consents. If the landlord does agree to terminate the lease this would save time and once the landlord's consent has been obtained the lease would be terminated in the form of a surrender, which is discussed in more detail below. However, the Landlord may require you to pay a premium for the surrender.
The surrender can take effect either in writing of by the conduct of the landlord and tenant, however if the surrender is documented in writing this would provide greater certainty. In addition that Landlord may require you to pay a premium for doing so. You would only be able to terminate the lease immediately if this was on or before the expiry of the contractual term of the lease.
In addition, it is important to note that the lease may still be terminated by other methods such as forfeiture, the provisions on which will be contained within the lease.
It is vital that the appropriate method of terminating a lease is chosen. Which method to choose will vary dependent upon individual circumstances. Your solicitor will be able to advise on the most suitable option in order to avoid breaching the lease.
If you are looking for any more information with regards to our services view our Commercial Property section. You can also contact any of the team in our Commercial Property Department via or phone on 01254 222399.