A quick overview of terminating or surrounding a commercial lease early
In a world where commercial premises such as shops are closing their doors every day, commercial landlords can be left vulnerable to tenants who may want to end their lease prematurely. Doing this formally is known as giving a ‘break notice’ that will have been inserted into the lease as a ‘break clause’ when the lease was initially signed.
When can a tenant terminate the lease?
A tenant can only terminate a lease early if the lease contains a break clause. Before the tenant can move out, they have to serve their landlord with a break notice. It is important that everything is done correctly and legally, as not following proper procedure will nullify the break clause and the tenancy will have to run until its expiry date.
The timing must be right in order to exercise the break notice, and there are two types of break notices in regards to the timing. A ‘once and for all’ break notice means that there is a specific deadline for serving the break notice. If the tenant doesn’t meet this deadline, they will lose the right to break completely and the tenancy will continue until the contractual term is complete.
The second break notice is a ‘rolling’ notice. This means that the tenant needs to ensure that the timing is accurate, or a fresh notice will have to be served and the tenant is still liable for rent and other responsibilities in the meantime.
The tenant must also be 100% sure about where and who to serve the break notice to. If they have not established the correct address or recipient, the break notice will not be served and the tenant may not get another chance. It’s therefore important that a legal advisor handles this step.
Finally, a tenant must meet pre-conditions in the break clause in order to serve the notice. Examples include:
- Paying all rent and other sums due
- Providing vacant possession
- Ensuring all the tenant’s covenants in the lease are performed
- Paying a break penalty payment
All these can be difficult to carry out and understand for the average person, so it’s important that legal advice is sought for the outset. Ideally, tenants should seek advice on the lease requirements around 12 to 24 months before they wish to serve a break notice.
What if there isn’t a break notice?
If a break clause hasn’t been agreed when the tenancy agreement was created, there is another option for the tenant. The lease can only be terminated early if the landlord agrees to this, which is known as a ‘surrender’. A tenant can either put this in writing or it can be inferred from the conduct of both the tenant and the landlord by ‘operation of law’.
However, if a landlord does not wish to take the property back before the end of the lease then the landlord cannot be compelled to do so. In this case, the lease will have to remain in place until the end of the agreement. However, sometimes a ‘surrender premium’ may be sought by a landlord in order to end the lease.
Can a tenant simply hand the keys back?
What happens if there is no break clause or the tenant doesn’t go down the legal route and simply hands the landlord the keys back?
The short answer to this is that a tenant can’t simply hand the keys back and be on their way. The law states that a landlord must make it clear that the tenant giving up the property has been accepted as surrender. If a landlord isn’t accepting this a surrender, they must make it immediately clear that accepting keys to the property does not constitute a formal acceptance of surrender.
A landlord must always seek legal advice on what to do in this case, and not accept any offers of part or full payment until the issues have been discussed and negotiated with solicitors.
What if there is no break notice and the landlord won’t agree to a surrender?
It may be possible for the tenant to reduce outgoings by assigning the lease to a third party or taking on a subtenant. However, all this depends on the requirements of the lease and the permission of the landlord before entering into any agreements. Again, legal advice is crucial at this stage.