Whether you are a commercial landlord or tenant, there are a number of reasons why you might want to bring your lease to an end early.
Maybe you have plans for your business, want to lease bigger premises or even downsize. Whatever the case, you have a few options available.
In her latest article, Commercial Property Solicitor Charlie Stickland discusses those options.
Can I surrender my commercial lease?
Yes, a tenant can give up their right to a lease by negotiating the surrender terms with the landlord. The terms must be agreed to by both parties, otherwise the surrender cannot take place.
Often, landlords can be reluctant to agree to lease surrender, as they’ll lose rental income, even if only for a short period. In such cases, you, as tenant, could offer a surrender premium to convince them to accept.
A lease can be surrendered either through a written and signed deed, or by conduct. If, for example, a tenant vacates a property and the landlord treats things as if the lease has come to an end, such as by moving in a new tenant, this would be a conduct surrender.
Related: How to negotiate a commercial lease with your landlord
How much does it cost to surrender a commercial lease?
This depends on a few factors:
- If you’ve offered a surrender premium, to cover lost rental income and/or the cost of finding a new tenant, this will be an added cost.
- Whether there are any outstanding debts or arrears that need paying.
- If the property is in a dilapidated state, there may be repair costs.
In addition, there will be legal costs involved in drafting the written deed of surrender. At Frettens, we aim to price our contract drafting services fairly, and will always be upfront and transparent when it comes to fees.
For a tailored quote, please call us on 01202 499255, or fill out the form at the top of this page.
What is a break clause in a commercial lease?
A break clause can be written into a lease to give the landlord or tenant the power to terminate a lease before it would usually end. However, not all leases will have, or be eligible to have, a break clause.
A fixed break clause can be written into a lease giving the tenant the option to terminate the lease early on a specific date by giving written notice to trigger the break, for example, a written 6 months’ notice before the break date.
Once the notice has been given, the lease will end on the break date. If the required notice is not given, the lease will continue until the next break date or the end of the term.
A rolling break clause gives the tenant the option to terminate the lease after a certain period of time. For example, a lease with a 10-year term and a 3-year rolling break option can be terminated any time after the 3-year period if you have served the required notice.
Read my colleague Ben Cobb’s article on break clauses in commercial leases here.
What is a Section 25 notice?
If your lease falls within the Landlord and Tenant Act 1954, a Section 25 Notice allows the landlord to end or renew the lease as long as certain requirements are met:
- The notice must be served no earlier than 12 months but no later than 6 months before the lease expiry
- The grounds that the landlord is relying on are clear
- Both parties are in agreement (court may be required if both parties can’t agree)
The Section 25 notice will allow the landlord to propose and negotiate new terms for the lease, but the tenant doesn’t have to accept. If the tenant doesn’t respond, they will continue to occupy the property on the same terms of the current lease until the end of the term.
Can a landlord withdraw a Section 25 notice?
No, a landlord cannot withdraw a Section 25 notice once it has been served on the tenant.
If you are thinking of taking this step, you should obtain specialist advice to ensure you are able to rely on the legislative grounds to end the lease.
What is a Section 26 notice?
A Section 26 Notice allows the tenant to request a new lease and gives the landlord the opportunity to respond and agree to that request.
The notice should propose the new terms of the lease, such as the amount of time it will last lease term), rent payments and start date.
A Section 26 Notice cannot be served if a Section 25 Notice has already been served.
Does a landlord have to respond to a Section 26 notice?
Yes, a landlord will need to respond to a Section 26 notice, if they intend to deny it.
It is advisable for parties to agree terms between themselves, however, if terms cannot be agreed, the parties can apply to court to determine the new terms.
What happens if a landlord doesn’t respond to a Section 26 notice?
If the landlord does not respond to the notice within 2 months of it being served, they will not be able to object to the new tenancy and a court will need to determine the terms of the new lease.
Can a landlord forfeit a commercial lease?
Most leases contain a forfeiture clause in which the landlord can bring the lease to an end and take possession of the property upon a trigger event.
The trigger event is usually where the rent remains unpaid for a period of time, eg. 21 days of being demanded from the landlord, or if there has been a breach by the tenant of any covenants (clauses restricting you from taking certain actions) within the lease.
What happens when a lease is forfeited?
When a commercial lease is forfeited by a landlord, that lease legally comes to an end.
For certain breaches, the landlord may need to apply to court, where a court will grant a possession order.
However, most of the time, re-entry is peaceful, and the landlord will physically take back possession of the property.
If, after your current lease has ended, you’re taking on a new lease, you can read our guidance on the heads of terms you’ll need here.
Specialist Commercial Lease Solicitors
If you have any queries following this article, or if you’re a landlord who want help to bring a lease to an end early, please don’t hesitate to get in touch with our bright Commercial Property Team.
To get in touch, you can call us on 01202 499255 or fill out the form at the top of this page. We offer a free initial chat for all new clients.
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