28 Jan Ending a commercial property lease early
1. Ending a commercial property lease early
A commercial property lease usually continues until its end date unless you include a clause to end it earlier.
This is an official date in the lease, agreed by the landlord and tenant, where the lease can be ‘broken’ without anyone facing a penalty. As a tenant, you need to give your landlord 2 months notice that you are using the break clause. As a landlord, you can only use it if your tenant agrees.
Tenants and ending a lease – as a tenant, you can also end your lease early if:
- the landlord agrees
- you pass the lease on to someone else (though the landlord may want you to provide a guarantee)
- you’re allowed to sublet (you’ll still remain responsible for the rent, even if you’re not trading from the premises).
If these situations don’t apply you must continue to pay rent for the whole tenancy period.
2. Landlords and ending a lease
As a landlord, you can only end a lease when the tenant fails to pay rent or meet other lease obligations.
If you have included a ‘forfeiture clause’ in the lease, you can use it in these situations to end the lease. However, if the tenant can challenge this in court they may be allowed to stay in the property.
When can a landlord forfeit the lease?
A landlord can only forfeit a lease if it contains a forfeiture clause. While this is a standard clause in a lease, it should always be checked as the details vary. A clause will usually allow the landlord to re-enter when the rent is not paid for a specified period (often 14 or 21 days), any tenant covenant is breached, or the tenant becomes insolvent (though insolvency legislation may restrict what the landlord is able to do).
Where rent (and other sums reserved as rent under the lease) are unpaid, there is no need for the landlord to give any notice to the tenant prior to forfeiting the lease: he can simply forfeit by either issuing court proceedings or by peaceably re-entering the premises.
3. Fixed-term tenancy
A fixed-term tenancy means the lease automatically comes to an end when the term is up. If you are a tenant and you want to stay on after this term, you can do so if your landlord agrees. However, staying on past a fixed term marks a ‘continuing obligation’ to pay rent. You’ll then need to give 3 months notice when you want to leave.
4. Renewing your commercial property lease
Most tenants have the right to renew their business lease when it ends. However, there are certain tenants who don’t have this right.
Business tenancies without renewal rights – you don’t have automatic renewal rights if:
- you’re a service tenant employed by the landlord,
- you’re on fixed-term tenancy of 6 months or less
- you waived your right to renew at the start of your lease.
The landlord’s right to refuse – your landlord can refuse to renew your lease if:
- you’re in breach of your obligations (eg you’ve not paid your rent)
- they want to use the premises themselves, for their business, or to live there.
Contributor: James Page
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