Table of Contents
Whether you are a commercial landlord or a commercial tenant in the UK, you may eventually be a party to a commercial lease surrender. This is where a commercial lease ends before the end term, but not in a way the lease allows for. For example, you may need to end your original agreement and a lease surrender is your only way. Or, you may find your tenants want to surrender their lease. In this case, you will need to understand the effect of this before you agree to it. This article will explain the effects of a lease surrender between a commercial landlord and a commercial tenant in the UK.
What is a Lease Surrender?
A lease surrender is where a commercial lease ends voluntarily or involuntarily. It can take place in one of two ways:
- an agreed surrender, set out in a deed agreed between the parties to the agreement; or
- a surrender by operation of law.
Below, we explore some ways this can occur.
Surrender By Deed
The most common form of lease surrender is by agreement. For example, if the landlord agrees to let the tenant exit its lease before the end of the term, the deed must record it. Essentially, the parties agree that the tenant is handing the rights it had over the property back to the landlord.
A deed is a specific agreement between parties with specific requirements and is different from a simple contract. For example, if surrender is not set out in a deed, the parties may have only contracted to agree that surrender will occur in the future, and not have surrendered the lease.
Surrender by Operation of Law
This is a complex area and there are several ways a lease can be surrendered without the parties intending it to. For example, say a tenant hands back the property to the landlord, and the landlord accepts this. In this case, vacating the premises is not enough to imply a lease surrender.
Alternatively, consider scenarios where the parties change the lease such that it cannot continue legally. For example, extensions of the term or changing the property that was granted to the tenant.
What Are the Effects?
If a tenant surrenders their commercial lease, it passes their interest or estate in the property back to the landlord. The landlord takes control of their property as they gain a right to recover possession of their land. This means that the commercial lease between the two parties ends.
As the lease agreement ends, the commercial tenant’s obligations under it also end. Therefore, neither party needs to perform the covenants any longer unless an express provision says they do when a lease surrender occurs.
Rent and Breaches
As a commercial tenant does not need to follow the covenants when they surrender a lease, they will not owe any future rent. However, this only takes effect at the point of surrender. Unpaid rent or breaches of the lease before the surrender date must be rectified.
When a tenant surrenders a lease between payment dates and pays rent in advance, the surrender does not entitle them to refund part of this payment. However, the surrender deed may account for this. If a tenant pays rent in arrears, a landlord has the right to ask for the portion due to be paid for the period before the surrender of the lease.
Where a commercial lease agreement provides for rent reviews, and the landlord did not initiate this where the date was before the surrender date, their right to start a rent review remains with them once the surrender takes space. Therefore, after a lease surrender, a landlord can initiate surrender and ask for the back date of the rent from the rent review date to the date of the lease surrender.
Other Possible Charges
Suppose a commercial landlord asks their commercial tenant to pay insurance rent to cover their annual insurance premium. In that case, their tenant does not usually have the right to a portion of this when they surrender the lease. However, if there is an express agreement which states they can, a refund should occur.
If a commercial lease includes a service charge, the tenant may require a balancing charge when the service charge lease year ends. Tenants cannot recover this when they surrender a lease unless the lease agreement states otherwise.
Underleases
When a commercial landlord accepts a lease surrender, the commercial tenant’s obligations end. However, if they have an underlease, the landlord is liable for their obligations.
Continue reading this article below the formCall 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
Key Takeaways
Under a lease surrender, a tenant passes their commercial lease back to their landlord, and the lease agreement ends before the lease term. When a commercial tenant surrenders their lease, it affects both parties.
If you need help understanding the effects of a lease surrender between a landlord and the current tenant 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 surrender of a lease is where a commercial tenant gives back their lease to their landlord with the latter’s complete agreement before the end term. The lease, therefore, comes to an end.
A lease surrender can occur as an express surrender by deed or an inferred surrender by operation of law.
We appreciate your feedback – your submission has been successfully received.
