UK: Ending Leases

Last Updated: 22 May 2017
Article by Katy Kirk

There are various ways in which a lease can end. The appropriate method of termination depends on several factors including whether the lease has the protection of the Landlord and Tenant Act 1954, which party wants to bring it to an end, whether the lease is coming to its contractual end or one party wants to get out of it early, and whether the tenant is in breach of any of the lease terms. This note provides an overview of the most common ways in which a lease may end and highlights some of the key considerations.

Business Tenancies – Landlord and Tenant Act 1954 (the "Act")

The Act offers protection to business tenants when the contractual term of a lease is ending, though the landlord and tenant may contract out of the Act if they wish. This protection gives the tenant a right to remain in occupation of the property and to take a new lease at a market rent. Unless the parties have contracted out before the lease is granted, a protected lease will automatically continue after the contractual termination date. If either party wishes to bring the lease to an end they need to follow a specific procedure.

Termination by the tenant

If the tenant doesn't want the lease to continue beyond the contractual termination date he can either:

  • Simply vacate by the contractual expiry date; or
  • Serve a s27(1) notice of his intention to vacate on the landlord, giving at least three months' notice

In either case the lease will end on the contractual termination date and the tenant will have no further liability.

If the contractual termination date has already passed and the tenant decides that he wants the lease to end, he must serve a s27(2) notice giving at least three months' notice of termination.

Termination by the landlord

A landlord is only able to terminate a protected tenancy if he can prove one of certain limited grounds for termination. The landlord must a serve a s25 notice on the tenant specifying a termination date which cannot be before the contractual termination date and must give between 6 and 12 months' notice. The landlord must specify which grounds he is relying on.

If the tenant has already requested a new tenancy (using a s26 request) and the landlord does not want to grant this, he must serve a counter notice within two months of receiving the s26 request, setting out the grounds of opposition upon which he is relying.

There are seven grounds that the landlord can rely on:
(a) That the tenant has failed to maintain or repair the property
(b) That the tenant has persistently delayed in paying rent
(c) That there are substantial breaches of obligations under the lease or objections to how the tenant uses or manages the property
(d) The landlord can offer suitable alternative accommodation
(e) There are complex subtenancies and the landlord can obtain a better rental return if he lets the property as a large unit
(f) The landlord intends to demolish or reconstruct the property, or carry out substantial construction work and could not reasonably do so without obtaining possession – this is the most commonly used ground
(g) The landlord intends to occupy for his own business purposes – he must have owned the property for five years before this ground applies

Unless the tenant agrees to vacate, it is up to the court to decide whether the landlord has proved the grounds. If the landlord can prove only "no-fault" grounds ((e), (f) or (g)) then the tenant is entitled to compensation (set at one times rateable value, or two times if the business has been carried on at the property for at least 14 years).

Effluxion of time – fixed term contracted out tenancy

A lease which is granted for a fixed term, and does not have statutory protection, expires when the term ends. It does so automatically and without notice. At the end of the term the tenant must give up possession of the property. This includes vacating the property and making sure that any subtenant vacates.

If the tenant fails to vacate the property then, in the absence of any formal agreement, the basis on which he occupies will depend on the circumstances and conduct of the parties. Unregularized occupation can have unintended consequences for the parties.

To avoid the uncertainty that comes at contractual lease end it is advisable for the landlord or his managing agents to contact the tenant at least six months prior to lease expiry to ascertain his plans. If the tenant indicates that he would like to stay, negotiations should begin for a new lease with the intention that this will be in place by the time the old lease ends. If a few weeks before lease expiry it still isn't known whether the tenant is staying or leaving, or a new lease will not be completed on time, then best practice is for the landlord to send an open letter demanding possession of the property upon lease expiry and to consider putting a rent stop in place to ensure that no rent is demanded or collected after the lease has expired (to avoid a periodic tenancy arising).

Break rights

A break clause is a right for the landlord, tenant or both to end the lease early, before the fixed term expires. A break may be unconditional but is more often subject to conditions set out in the lease. Break clauses are strictly construed which means it is essential that the party wishing to exercise the break does exactly what the lease says. You should always take legal advice before exercising a break.

Exercising a break right

The first thing to establish is when the break may be exercised: some leases will give a rolling break (eg on six months' notice at any time) but it is more common to see a break which allows the lease to be ended only on one or more specified dates.

Care must also be taken with service of the break notice. Everything that the lease says about the notice must be exactly followed, including how much notice must be given, the format of the notice, who may sign the notice and how the notice may be validly sent to the other party.

Break conditions

Some break clauses (particularly tenant's breaks) are conditional on certain things having been done. These usually need to have been done as at the break date but some leases require that conditions also be fulfilled at the date on which notice is given – this should be checked carefully.

It is common to see the following conditions in a tenant's break right:

  • A requirement that rent due be paid up to date – this may include sums in dispute and rent relating to a period after the lease will have ended where payment falls due prior to lease end.
  • A requirement that the tenant gives vacant possession – this means that the tenant needs to make sure that the property is empty of all people and any goods or alterations (such as significant partitioning) which prevent or interfere with the landlord taking possession. If there are subleases in place the tenant needs to ensure that these have been terminated and the subtenants have fully vacated.
  • A general condition that the tenant is in compliance with all its covenants – this is very difficult for a tenant to comply with as there will nearly always be a minor breach of eg the repair or decoration covenant. As a tenant, if you have a clause of this kind, it is advisable to try and engage the landlord to agree well in advance as to exactly what needs to be done to comply. However, a landlord is under no obligation to do this and if he does not want the lease to end is unlikely to agree. In this situation, the tenant will need to carry out his own survey to ascertain exactly what work needs to be carried out and then ensure that this work has been done before the break date.

Surrender

The surrender of a lease is an agreement between the landlord and the tenant that the lease will end early. A surrender is not effective unless it is accepted by the landlord.

A surrender may be express (in which case it must be made by deed and take effect immediately) or it may take place by operation of law (eg the tenant gives the keys back and the landlord accepts them, knowing that the tenant is bringing the lease to an end). It is possible to enter into an agreement to surrender the lease at a future date but if the lease has 1954 Act protection then the surrender agreement must be contracted out.

When a lease is surrendered, the term ends and the landlord has the right to possession of the property. Both parties are released from future covenants but remain liable for past breaches, unless the surrender deed provides a full release. It is worth noting that any subtenancies which had been granted out of the surrendered lease do not fall away: the landlord simply becomes the direct landlord on the terms of the subtenancy. Landlords should therefore make sure that they are aware of any subtenancies that are in place before they agree to take a surrender.

Forfeiture – the right of re-entry

A "right of re-entry", or "forfeiture right" is a landlord's unilateral right to bring a lease to an end in the event of a breach by the tenant. Ordinarily a lease will contain an express right for the landlord to forfeit in defined circumstances. If the lease does not contain this right the landlord may still be able to forfeit for some breaches, but this will need to be carefully checked. If a lease is successfully forfeit all interests created out of it will fall away, including those of any subtenants or mortgagees, subject to any relief that they might claim.

The forfeiture procedure to be followed depends on whether the landlord is forfeiting for non-payment of rent or some other breach of covenant. Where the breach is non-payment of rent, the lease will usually provide that the right to re-enter arises a fixed period (eg 21 days) after the rent fell due. If the rent has not been paid at the end of this time, then the landlord doesn't need to give the tenant any notice of his intention to forfeit – he can immediately do so either by issuing court proceedings seeking possession (and the arrears of rent) or by peaceably re-entering the premises (usually employing a bailiff).

Where the breach is of some other covenant, the landlord may only exercise the right to forfeit after he has served a s146 notice on the tenant, giving the tenant an opportunity to remedy the breach and a reasonable time in which to do so. Where the breach is of a repairing covenant and the lease was originally for a term of seven years or more with at least three years still to run, the s146 notice needs to include additional provisions which allow the tenant to serve a counter-notice forcing the landlord to obtain the leave of the court before he can forfeit.

It is important for the landlord to understand that as soon as he becomes aware of a breach of covenant occurring, he must decide then whether to determine the lease or allow it to continue. Once the landlord is on notice of an act or omission that would permit him to determine the lease he must ensure he does nothing to waive the breach on which he may want to rely.

As forfeiture is a form of penalty, the courts lean against it and will often grant relief if requested. An application for relief may be made by the tenant, his mortgagee or any subtenant. Where the forfeiture was for non-payment of rent, relief will automatically be granted where the tenant pays all arears due and all costs of the action; for other breaches, relief will be at the discretion of the court but will usually be granted if the tenant has either remedied the breach or promises to do so within a specified period. If relief is granted it is as if the lease had never been forfeit.

Disclaimer

When a tenant has gone into insolvent liquidation, the liquidator can disclaim the tenant's liability under a lease. This ends all the insolvent tenant's rights, interests and liabilities in the lease. The liquidator must follow the specified procedure, giving notice to everyone that requires it. Generally speaking, a liquidator can disclaim at any time. However, a landlord can force a decision by serving a "notice to elect" on the liquidator. This gives the liquidator 28 days to disclaim, or he loses his right to do so.

Provided that the landlord does not take back possession of the disclaimed property, the disclaimer only brings the tenant's liability to an end: it does not end the lease itself, meaning that the rights and liabilities of guarantors and former tenants continue.

The position with regards to subleases is complex; in essence, the subtenant can remain in possession for the term of the sublease as long as he pays the headlease rent and complies with the headlease covenants. This will often be a more onerous liability. Although the terms of the headlease are not directly enforceable against the subtenant, the landlord can forfeit for any breach of these. The subtenant has no ongoing obligation under the terms of the sublease as from the date of the disclaimer, so if he wishes to leave the property he can.

To tidy up the messy situation that exists following disclaimer, a subtenant (or other entitled party such as a guarantor) can apply for a vesting order, meaning that the applicant becomes the tenant under the lease. The landlord is also able to apply to vest the lease in one of these parties and if they decline then their rights, interest and liability in respect of the property will end.

What happens when the lease ends?

Recovery of possession

If the tenant remains in occupation of the property once the lease has ended he becomes a trespasser and the landlord can take action to recover possession. The easiest way to do this is by entering the property and changing the locks when the property is vacant but this needs to be done carefully so as to avoid criminal liability. Alternatively, the landlord can apply to court for a possession order. This usually takes around 6-8 weeks and if the tenant still refuses to leave the landlord can get the bailiffs (and ultimately the police) involved.

Damages for continued occupation

If a tenant remains in occupation as a trespasser the landlord can claim damages. Which is usually a sum equivalent to the ordinary letting value of the property, together with other losses that the landlord has suffered as a result of the trespass.

Yielding up

Most leases contain an express obligation on the tenant to return the property to the landlord in compliance with the covenants in the lease. The main clauses to check are those relating to repair, decoration, alterations and signage. The obligation will usually state that the tenant must give "vacant possession" and allow the landlord to recover his costs in respect of removing anything which the tenant leaves behind.

Property which the tenant brings on to the premises may be a landlord's fixture, a tenant's fixture or a chattel, which is usually determined by how much the item has become part of the building. The general principle is that a tenant cannot remove the landlord's fixtures at the end of the term, has the option of removing tenant's fixtures and must remove chattels. However, this principle can be modified by agreement between the parties, so the tenant can contractually be required to leave or remove any items, regardless of the nature of them. The lease should therefore be reviewed carefully to check what cannot, may and must be removed.

Reinstatement

The tenant should take great care in ensuring that he complies with any reinstatement obligations in the lease or in any licence for alterations granted during the term of the lease. There may be an absolute obligation on the tenant to reinstate or it may only be necessary if requested by the landlord. Failure to reinstate is likely to lead to claim for damages.

Dilapidations

Most leases contain express covenants in respect of decoration and repair. At the end of the lease the landlord can make a claim for damages for disrepair. If the landlord is intending to alter or demolish the property this may significantly reduce the amount that he can claim.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Katy Kirk
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.