Every business Lease has an end date for the initial term, but there are several different ways in which a Lease may end and different rights that are applicable, depending on the drafting.

Ending a Lease with security of tenure

A Lease may be granted with the benefit of the provisions of sections 24-28 of the Landlord and Tenant Act 1954. This means that the tenant can request a renewed Lease at the end of the initial term. The added benefit is that the renewed Lease must be on the same terms as the existing Lease, save for rent. A tenant must notify the Landlord that they would like to renew their Lease by serving a notice.

If a Landlord does not wish to renew a Lease, or if they want to propose different terms for the renewed Lease, they must serve a notice on the Tenant before the Tenant has served the above mentioned notice. There are strict limitations for a Landlord to oppose the grant of a renewed Lease. If a Tenant has the protection of security of tenure, the Landlord cannot simply end the Lease because they would like a new Tenant.

There are strict timescales involved in serving the necessary notices, and the consequences of not serving or responding to notices could be detrimental to either party if they are stuck with a Lease on terms with which they are not happy.

Ending a Lease without security of tenure

If when a Lease is first granted, the Landlord serves a notice on the Tenant that the Lease is to be granted outside of the protections of section 24-28 of the Landlord and Tenant Act 1954, the Tenant will not have security of tenure. The Tenant swears a simple or statutory declaration to acknowledge receipt of the notice, and that they are aware of the consequences. This must take place at the beginning of the Lease, otherwise the Tenant will be entitled to request a renewed Lease.

Where a Lease has been excluded, the Tenant must vacate the property at the end of the initial term. They will need to remove all items, fixings, and fittings from the property that were not there when they moved in. The Lease will specify the exact requirements for removing or undoing alterations which may have been made, also, as to the state and condition in which the property should be left. The Landlord will prepare a Schedule of Dilapidations at the end of the Lease, which will list any wants of repair at the property which should have been dealt with by the Tenant when they vacated.

It is possible for tenants to negotiate a renewed Lease with the Landlord, even if they do not have security of tenure, though the Landlord is under no obligation to grant a new Lease. A Tenant has no right to remain in the property after the end of the fixed term, if security of tenure is excluded, and will face legal action from a Landlord if they do not vacate by the correct date.

Operation of a Break Clause

It is possible for a Tenant to negotiate for the inclusion of a Break Clause in a new Lease. This would allow the Lease to be ended before the expiry of the initial term, provided various criteria are met. A Break Clause can either be a Tenant only option (only the Tenant can break the Lease) or a Mutual option (either party may break the Lease). This clause must be present in the Lease when first granted, for a party to be able to take advantage of the option to end the Lease early.

The wording included in a Break Clause, and the timings specified are key in its successful operation. The clause will specify the exact timescale in which the notice to operate the Break Clause must be served, and if a notice is served too early or too late, the Break Clause will not be operated. There are also requirements for rent and service charge to be paid up to date, as at the earlier date the Lease will end. Sometimes, the obligation for rent and service charge to be paid up to date extends to when the notice is served. Tenants must ensure they adhere to these obligations, otherwise the notice to break the Lease will have no effect.

Some Leases also include obligations for the Tenant to have complied with their repairing and decorating obligations at the date the Lease will end. These tend to be older style Leases and will not be found in more modern drafting. There is always an obligation for the Tenant to vacate the property by the date on which the Lease is to end, and this will include an obligation to leave the property in the state and condition required by the Lease. A Landlord will still have the option to prepare a Schedule of Dilapidations, and pursue the Tenant for wants of repair, even if the Lease is ended early via a Break Clause.

It is often the downfall of a Tenant to partially comply with the provisions of a Break Clause, and not every requirement. This can be catastrophic to a Tenant, as they may then be tied to the property for several more years. Break Clauses are very specific and require attention to detail to ensure absolute compliance.

Landlord’s option to forfeit a Lease

A Landlord to exercise their right to forfeit a Lease. These provisions are included in almost every commercial Lease and provide the Landlord to re-enter the property. The forfeiture clause in a Lease specifies the events which could lead to forfeiture, though the most common are non-payment of any balance due under the Lease within a specified timescale, the Tenant becoming insolvent, or a material breach of the Lease.

If a Landlord wishes to forfeit a Lease, they must serve a notice upon the Tenant specifying that they will soon forfeit the Lease. Once the timescale specified in that notice expires, the Landlord may simply re-enter the property and change the locks. The only requirement for the Landlord during the re-entry process, is that they cannot change the locks if any other person is present in the property – the property must be empty of people at the time. Once the locks have been changed, the Tenant will need to negotiate with the Landlord as to the return of their belongings and equipment. This will likely involve discussion as to the costs of the forfeiture, and any payment required to rectify the breach of the Lease. Settling these discussions does not give rise to a right for the Tenant to reoccupy the property. The term of a Lease ends immediately upon re-entry by the Landlord.

There are reliefs from forfeiture available to Tenants, and subtenants if the head Tenant has underlet the property. However, the application and use of these reliefs is extremely time sensitive.

For expert advice on all aspects of corporate commercial law, contact Backhouse Solicitors today to book a free initial consultation.

Tel:          01245 893400
Email:     [email protected]
Visit:       17 Duke Street, Chelmsford, CM1 1JU
Or send us a message through the Contact Us page on this website.