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A commercial lease can be ‘protected,’ meaning it will benefit from security of tenure. In this case, your lease will legally renew at the end of the term rather than terminate. However, you may find yourself in a situation where you want to terminate your protected lease. If you wish to do so, you must follow strict legal procedures. This article will explain how landlords and tenants can terminate a protected lease.
This cheat sheet outlines what you should be aware of in your lease agreement.
What is a Protected Lease?
A protected commercial lease is one where a tenant enjoys the legal automatic right to lease renewal at the end term date. This automatic renewal is known as security of tenure.
When the lease renews, it should do so on the same terms as the existing lease or better terms (with the landlord’s and tenant’s consent). Ultimately, once the commercial lease reaches the end of the contractual term, the tenant can remain in occupation of the property. It continues to be their business premises, and there is no need for the landlord and tenant to negotiate a new lease.
What is Termination?
There may be occasions when either the landlord or tenant wishes to end the lease rather than let it automatically renew. If this is the case, there are legal procedures for terminating a lease.
The following sections outline the different termination procedures for a commercial tenant versus a landlord.
Commercial Tenant
A commercial tenant has the right to terminate the lease rather than let it legally automatically renew. There are reasons why a tenant may choose to terminate their lease, such as because:
- their business has grown, and the premises have become too small;
- they can no longer afford the rent; or
- their business plans to move the location
To terminate the protected lease, the tenant must serve the landlord with a Section 27 Notice. If the lease has not yet reached the lease end date and has not previously gone through renewal, they must serve the Section 27 Notice at least three months before the lease term end date. If the lease has previously gone through renewal, the tenant can choose their termination date. However, they must still serve the Section 27 Notice at least three months before the date they wish the lease to terminate.
A tenant can also serve their landlord with a Section 26 Notice. This does not terminate the lease as a Section 27 Notice does. Instead, it terminates the current lease in anticipation of a fresh one once the lease term ends and the lease renews. Tenants may serve this notice because they wish to suggest new terms for the new lease. Therefore, the notice must contain these suggested terms plus the date the current lease ends.
Commercial Landlord
A commercial landlord can only terminate a protected lease if one of the seven legal grounds exists. If they meet one of these grounds, they can serve a Section 25 Notice on their tenant to terminate the lease. The landlord must detail the grounds or grounds they rely on when they serve it.
Notably, if a landlord already has a Section 26 Notice from their tenant, they cannot issue a Section 25 Notice. Instead, they must oppose the Section 26 Notice with a counter notice within two months of receipt of the Section 26 Notice. Again, this must state the ground or grounds they rely on to terminate the lease and must be in writing.
A landlord can also serve a Section 25 Notice on their tenants because they wish to acknowledge that the commercial lease is due to renew legally automatically, but they want to suggest new terms for the new lease.
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Key Takeaways
If you have a protected commercial lease, it will automatically renew when it reaches the lease end term date. As a commercial landlord, there may be times when you want to terminate your commercial lease. If you meet one of the seven legal grounds to rely on, you must follow the statutory procedures for a Section 25 Notice. Equally, if you are a commercial tenant, you may not want to remain in occupancy of your premises. If so, you should use a Section 27 notice and the procedures associated with this.
If you need help terminating a protected lease, 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. Call us today on 0808 196 8584 or visit our membership page.
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