Understanding lease terminations, notice periods, and tenancy agreements is important in either residential or commercial property, as unlawful evictions or non-payment of rent could lead to a legal dispute.
Particularly in commercial rentals, many businesses assume that they can end the tenancy at any point of their choosing, and a landlord may have a similar misconception that there is no formal process they need to follow should they wish to terminate an agreement.
However, any lease of any kind is a contractual agreement and will stipulate clauses such as the notice period required from either party, the grounds on which a lease can be terminated early, or the liabilities associated with ending a lease before the minimum period.
In this article, we discuss 3 common ways that leases can be terminated.
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Reasons a Landlord or Tenant May Wish to End a Lease
It is important to consider the reasons behind a planned commercial lease termination, as this may dictate the right way forward. For example:
- Ending a lease because the other party has breached a term of the tenancy, such as not paying rent, demanding additional payments, or failing to keep the property in a habitable condition.
- Wishing to sell, renovate or repurpose the building.
- Simply not wishing to accommodate the home or building unit, perhaps in favour of a cheaper or more modern alternative.
- Personal or financial reasons, such as bankruptcy, business closure, or a change in income, which means the rent is no longer viable.
If you are in any doubt about whether your reason for wanting to terminate a lease is lawful or permitted within the tenancy agreement or other contract you have, consulting a professional adviser may be beneficial.
Regardless of the reason, there will be a prescribed series of steps you take on either side of the tenancy agreement to see whether you can end the lease as you wish.
Expiry of the Term
Commercial landlords need to check whether security of tenure applies since this gives the tenant the right to continue occupying the property even if the original end date within their lease agreement has passed.
Leases that do not grant security of tenure may be treated differently, but a landlord can still serve a notice if they wish to terminate a tenancy when security of tenure applies.
However, in some cases, both parties can choose to opt out of this clause within the lease agreement, withdrawing the automatic right, which allows the tenant the freedom to vacate with notice given in writing.
If a landlord serves a valid notice and the tenant refuses to leave, they will generally need to proceed with a possession order.
What is a break clause?
Break clauses are written into the lease agreement in an initial contract. In effect, a break to provides to provide the option of a ‘pause’, often in the middle of a lease. For example, the agreement may be a lease of a three-year period with a break clause at 18 months, which either the landlord or tenant can exercise, provided they give the appropriate notice.
The specific requirements linked with a break clause will vary, and it is essential you seek legal advice. Preconditions might include notice periods or paying all rent up to date.
What is Landlord Forfeiture?
Lease forfeiture can be a valid way to terminate a lease, but the landlord may need evidence that the tenant has breached the terms of their tenancy agreement and that this gives sufficient reason to justify forfeiture.
The exact terms in the agreement will need to be verified because some contracts will list those circumstances that give the landlord the right to remove the tenant – although non-payment of rent is the most common.
The notice served will also depend on the nature of the breach, where a landlord may not need to give notice to commercial tenants who have repeatedly failed to pay their rent, but they might need to serve a formal court order in other scenarios.
What is Lease Surrender?
Tenants may decide that they wish to surrender a lease during a fixed term, and the best approach is usually to negotiate with the landlord to agree to surrender via deed or conduct.
Conduct surrenders mean the tenant returns the keys to the landlord, who accepts receipt and brings the lease to an end from then on, provided both parties agree. Landlords may require for a compensation payment to be made to them, within reason, to compensate them for the loss of rent.
Landlords are also within their rights to request the early termination of a lease and ask the tenant to surrender, but they aren’t obliged to consent and may also request a premium or compensatory payment.
Paperwork and Court Orders Linked With Lease Terminations
As we have seen, the paperwork or process by which a landlord can end a tenancy will depend on the situation, the specifics within the tenancy agreement, and why they wish to end the tenancy. Some of the primary options which may be relevant, particularly for residential tenancies, are as follows.
Section 21 Possession Order
Section 21 orders, also known as ‘no-fault evictions’, are somewhat controversial and are expected to be abolished in 2023. In the meantime, these orders are a common way to end an assured shorthold tenancy.
Landlords can repossess a property once the lease reaches the end date via a Section 21 order. The landlord doesn’t need to specify a reason but is obliged to give at least the minimum notice period, which is usually two months.
Section 8 Evictions
Section 8 lease terminations can be complex but are most often used when a tenant has not paid their rent. Residential landlords tend to serve both a Section 21 notice and a Section 8 notice simultaneously and need to comply with regulations that make evictions illegal without a court order or notice.
Periodic Tenancy Terminations
Periodic tenancy agreements work on a rolling basis and usually have a fixed term, followed by a renewable contract – such as a month-by-month rental agreement. Landlords may still serve a Section 21 notice to terminate this type of lease.
There are, however, two potential scenarios. Statutory periodic tenancy agreements invalidate any break clause originally included in the tenant contract, and instead, the usual two months’ notice applies.
Contractual periodic tenancies are slightly different and will stipulate the exact notice period required from either party if they wish to end the agreement.
If you run or manage commercial properties and would like to find out more information, get in touch with the commercial debt recovery agents here at Clearway today. Give us a call on 0800 002 9049 or ask us a question here.