Once a commercial lease has been entered into, the term of the lease is usually set for a number of years, which may typically range from 3 – 10 years, although the term can be shorter or longer. The term dictates the duration of time that the parties to the lease (Landlord and Tenant) will be contractually obliged to perform their individual obligations under the lease.
Once the lease has been entered into, it may not be possible to bring the lease and those obligations to a premature end and the lease will remain in place until the term expires. Terminating a commercial lease in England or Wales can be a complex process, governed by the terms of the lease agreement and statutory provisions, particularly the Landlord and Tenant Act 1954.
Here are some common ways to terminate a commercial lease, although not an exhaustive list:
Expiry of the Lease term
Subject to whether or not the lease has the benefit of security of tenure, afforded by the Landlord and Tenant Act 1954, the lease may come to a natural end on the last day of the lease term. This date is usually specified in the lease. On that day, the Tenant can terminate the lease by vacating the property and returning the keys to the Landlord.
Break Clauses
Many commercial leases include a break clause, allowing either one party or both parties to terminate the lease early. Subject to negotiations, the break may be exercised on just one occasion/specific date or on multiple dates. The lease will specify the conditions and notice period required to exercise this clause. For the break clause to be exercised effectively, the party exercising the break must adhere strictly to the conditions specified within the lease. Failure to do so may invalidate the break and result in the lease remaining in place, causing the obligations on each party of the lease to continue.
Mutual Agreement
If there is no ability to exercise a break clause within a lease, the Landlord and Tenant may mutually agree to terminate the lease early. This agreement should be formalised in a deed of surrender, outlining the terms and conditions of the termination. If the Tenant seeks to instigate the termination, they will likely have to approach the Landlord with an attractive offer. This offer may include finding a new tenant for the Landlord to negotiate a new lease with or offering a monetary sum, by way of compensation for the time in which the property will likely be vacant.
When negotiating a commercial lease, it is crucial to ensure that the terms meet with your current and future business needs, whether that be as Tenant or Landlord.
From a Tenant’s perspective, quite often, the property from which the business trades can be essential or disastrous to the success of that business. If you are entering into a new lease of a new property, it will not be possible to predict the impact the property will have on the business from the outset. With this in mind, exit strategies should be considered before the lease even starts.
From a Landlord’s perspective, it may be that the ability to take back the property at some point in the future is required, and so some flexibility to do this, should be considered at the outset of lease negotiations.
How we can help
Legal advice is crucial to navigate the complexities of lease termination. The commercial property solicitors at Oliver & Co are on hand to help, whether you require support in negotiating the initial terms (Heads of Terms) of a lease or require legal advice and expertise to ensure the lease works for you. Fill in our enquiry form today and we can discuss how we can assist you and your business.
