In Short
- Early termination of a commercial lease requires a valid reason, such as rent arrears or breach of lease conditions.
- Forfeiture can be used for non-payment of rent, but other breaches may require serving a s146 notice.
- If the lease is protected, a Section 25 Notice must be served to oppose lease renewal.
Tips for Businesses
If you need to terminate a commercial lease early, ensure you have a legal basis. For non-payment of rent, forfeiture is often the remedy, while other breaches require serving a s146 notice. If your tenant has security of tenure, you must issue a Section 25 Notice to oppose renewal. Always seek legal advice before proceeding.
As a commercial landlord in the UK, you may be in a situation where you want to terminate your lease before the end of the term. As a result, you will take back possession of your property. You may do this, for example, due to rent arrears. However, it is essential that you understand your legal obligations when terminating a lease, as well as the process for carrying out an early termination. If you terminate a commercial lease without a valid reason or in the wrong way, the termination may be illegal and a criminal offence. This article explains when you can terminate your commercial lease and briefly outlines the procedure.
What is a Commercial Lease?
A commercial lease is a contract between you and your tenant. It specifies that your tenant can use the property for a particular business purpose and for a specific period. In turn, they will pay you rent.
The lease agreement outlines each party’s obligations and rights. It can impact the grounds for lease termination and offer solutions for any breach.
Landlord and Tenant 1954 Act
As a landlord, whether and how you terminate your lease early depends on the type of commercial lease agreement you have. Many lease agreements are protected leases, with security of tenure.
If the lease is ‘contracted in’ to the 1954 Act, the tenant will gain this security of tenure. After the lease term expires, they can hold over and remain in the property by requesting a renewal lease. To terminate the lease at the end of the term, the landlord must oppose the renewal of the lease. This can only be done on specific grounds. While this is not an early termination per se, most landlords will be concerned with retaining control over when the tenant must vacate the property. There are still ways for a landlord to terminate a commercial tenant, whether during the original term of the lease or during any extension of that term under the Act.
Continue reading this article below the formReasons to Terminate the Lease
As mentioned above, some tenants may benefit from additional rights under the 1954 Act. If the landlord is against renewal of the term, they may serve a s26 notice to oppose the grant of a renewal lease. This can only be done on specific grounds, such as the redevelopment of the property or a persistent breach of the lease by the tenant.
Please note that this s26 notice will apply following the expiry of the original term of the lease. Usually, when a landlord seeks to terminate the lease during the original term, they can rely on their forfeiture right or a break clause.
Overall, you should also look at the commercial considerations of termination, as the property will be unoccupied once the current tenant effectively vacates.
Terminating the Lease During the Original Term
A landlord most commonly seeks to terminate the lease due to a tenant’s ongoing breach of obligations, including rent payment.
How you terminate the lease prior to expiration may depend on the following circumstances.
Can the Lease be Terminated Through Forfeiture?
Forfeiture under a commercial lease allows the landlord to re-enter the property and regain possession, typically by changing the locks.
Under statute, you are able to exercise forfeiture for non-payment of rent. The lease will usually specify a timeline following which forfeiture can be a remedy – for example, 14 days after the payment was due. Please note that it is common for there to be no requirement to give notice to the tenant, although this can be otherwise specified in the lease.
For other breaches, such as failure to repair or breach of permitted use, you may still wish to exercise forfeiture. In this case, you may only forfeit the lease if the lease agreement explicitly grants you this right. The relevant clause usually specifies the breaches for which forfeiture can be exercised, along with notice periods or timelines. Under statute, you must usually give prior notice before forfeiting for such breaches, using a s146 notice.
If you wish to terminate the lease for non-payment of rent, you may not need a s146 notice. This notice is not required before termination in this case. Many leases allow forfeiture by what is known as peaceable re-entry, which requires an unequivocal act to end the lease. However, this is a technical area, and you should always seek legal advice beforehand.
Relevant Notices
What is a 146 Notice?
Before terminating the lease and gaining possession for a breach, you must serve a s146 notice. This applies to breaches other than non-payment of rent, insolvency, or assignment without consent.
A section 146 notice will set out:
- what the breach is; and
- what you may require the tenant to do, such as pay compensation; and
If the breach is capable of remedy, the tenant is given a reasonable period to fix the issue.
- If a breach is not capable of remedy, the 146 notice will just contain the date on which the lease will terminate due to the notice.
Please note that, where the breach concerns repairs, specific requirements apply to certain leases. If the term of the lease is over 7 years and 3 years remain, your tenant will have 28 days from receipt of a s146 notice to inform you that they wish to claim statutory protection. If they do, you will need permission from the court before you take any other action concerning termination.
You should also note that courts may grant relief from forfeiture even if the correct procedure has been followed.
Section 25 Notice
If your commercial tenant has security of tenure and you wish to oppose lease renewal, serve a Section 25 Notice.
The notice must state:
- that you do not wish to grant your commercial tenant a new tenancy once their lease term comes to an end;
- your reason for this which must be a prescribed ground; and
- The terminating date, which must be at least 6 months but not more than 12 months.
Please note that this can only be done for certain reasons, such as when you wish to redevelop your property. The notice must follow a prescribed form. It is best to seek legal advice for its preparation and service.
This cheatsheet includes practical tips to understand key clauses and avoid disputes in leasing agreements.
Key Takeaways
If you wish to terminate your commercial lease early, you must have a valid reason. If you have a legal basis to terminate the lease, such as rent non-payment, you may do so through forfeiture. However, if your tenant breaches another provision of the lease, you will need to serve a 146 notice. If your lease is protected and you do not wish to renew it, you must serve a Section 25 Notice. This is required if you have a legal reason to oppose the renewal.
If you need help understanding when you can terminate a lease in the UK, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A commercial landlord may be able to terminate their lease early for specific reasons such as failure to pay rent, failure to carry out repairs, plans to demolish or reconstruct the property, or substantial breaches of the lease, including criminal behaviour.
A 146 notice is where you give your tenant notice that you intend to repossess the property, and you must do this where the breach of the lease is not non-payment of rent.
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