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A commercial lease is a significant legal commitment for any business owner. It is likely one of the most essential business expenses and one where you must fulfil many legal obligations. For commercial landlords, their commercial lease is an essential source of income concerning property interests they wish to protect. However, commercial leases do end, which can sometimes happen earlier than initially anticipated. Understanding how this can occur is crucial, so you can prepare for such a scenario. This article will explain in what ways a commercial lease can end in the UK.
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What is a Commercial Lease?
A commercial lease is where a commercial landlord allows a business owner to occupy their commercial property in return for a rent. They will specify what business activity the business can carry out on the premises acting as that company’s commercial premises. The business owner will, therefore, take the role of the commercial tenant.
The terms and conditions of a commercial lease are in the commercial lease agreement, which includes both parties’ rights and obligations. This is a legally binding agreement, so until the commercial lease ends, the commercial tenant and landlord must abide by this agreement. Below we discuss ways a commercial lease can end.
What is an End of Lease Term?
A commercial lease will usually last for an agreed period (the lease term). The commercial lease agreement will specify the lease end date. This is the date the lease may end and effectively expires. However, whether or not the commercial lease does in fact, come to an end at this point depends initially on the type of commercial lease in question.
Where the lease is a protected lease with the security of tenure, when you reach the lease end date, the lease will not end. This is a legal right for the tenant, and the tenant can then seek to renew the lease.
If a tenant wants to avoid taking advantage of the legal right of renewal and bringing the commercial lease to an end, they can serve their landlord with a Section 27 Notice at least three months before the end of the term. Alternatively, if they wish to end the lease after the end of lease term date, so after renewal takes effect, they can give three months’ notice at any point.
Where the commercial lease is not protected (i.e., a contracted out or excluded lease), the lease will come to an end at the lease end date.
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What is an Opposition to Renewal?
Whilst a protected commercial lease will not usually come to an end when it reaches the lease term end date, there are some circumstances when it will. For example, a protected commercial lease can end because the landlord opposes the continuation of the tenancy on limited legal grounds.
If this occurs, the landlord will serve the tenant a Section 25 Notice to end the lease and gain possession of their property, which a tenant may oppose through the court. In this case, it will be for the court to decide when the commercial lease ends or if it continues as a lease renewal.
Break Clause
Whether the commercial lease is a protected lease or an unprotected one, a commercial lease can end through a break clause. Either party can exercise a break right.
A break clause is a clause in a lease which specifies how the commercial lease can be brought to an end before the lease end date. It may specify that you can use it:
- on a specific date or dates in the lease term, which is a fixed-date clause;
- after the tenant has been in inoccupation for a set time; or
- at any point in the lease term, which is a rolling break clause.
A break clause will detail the procedure for using the break right and any conditions a party must meet to enable its use. In addition, you must provide the other party with a notice to exercise the break clause.
Can I Surrender the Lease?
It may be possible to end a commercial lease through a lease surrender. Except where the surrender occurs as a matter of law (an implied surrender), the tenant must request the landlord’s permission to surrender the lease (an express surrender). This is not a tenant’s right or something the landlord must agree to.
An implied surrender can be triggered in various ways that demonstrate conduct fundamentally different from the lease continuing. For example, a tenant’s conduct shows they surrender the lease such as handing back the keys. However, the landlord’s conduct following an attempt at implied surrender will determine if a lease surrender occurs.
Key Takeaways
A commercial lease can end in the UK in various ways. The obvious method is where it reaches the lease term end date and is not a protected lease. Where it is a protected lease, meaning the tenant has a legal right to renew the lease, it can still end on the lease term end date or shortly after where the tenant wishes it to and services a Section 27 Notice on their landlord. It can also end at or near to the lease end term date, where the landlord opposes renewal on one of the limited legal grounds to do so. There are other ways a lease may end, including the use of a break clause or through express or implied lease surrender.
If you need help understanding how a commercial lease can end in the UK, LegalVision’s 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. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A commercial lease is where a business owner occupies a commercial property as their business space with permission from the commercial landlord. They do so for a specific lease term and in return for a rent.
There are a few ways a commercial lease can end in the UK. One of these is where the commercial tenant or landlord, or both, use the break clause.
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