Ways to terminate a business lease
- For a tenancy “inside the 1954 Act” – unless otherwise agreed between the landlord and the tenant, by some form of notice served by the landlord or the tenant.
- For a tenancy “outside the 1954 Act” – unless otherwise agreed between the landlord and the tenant, by expiration of the term.
- By a formal surrender agreed between the landlord and tenant. This is something that is negotiated between landlord and tenant. It may involve one party paying money to the other. A surrender will sensibly be tied up by a carefully worded deed of surrender.
- By exercise of a break clause contained in the lease. Care needs to be taken to ensure that the conditions of the break clause are complied with. Issues may arise in respect of dilapidations or other alleged breaches of tenant covenant.
- By the landlord forfeiting the lease for non-payment of rent. The landlord may be able to forfeit by peaceable entering upon the property.
- By the landlord seeking to forfeit the lease because of other alleged breaches of tenant covenant.
Landlord and Tenant Act 1954
A business tenancy can be “inside” or “outside” the Landlord and Tenant Act 1954.
“INSIDE THE 1954 ACT”
If a tenancy is inside the 1954 Act then the tenancy will continue indefinitely until it is terminated by some specific action on the part of the landlord or tenant. Normally, this happens when a landlord serves a notice under section 25 of the 1954 Act specifying a date when it comes to an end. Such a notice will either indicate that the landlord is willing to grant a further lease or it will say that the landlord requires possession. If the landlord requires possession then it can only obtain possession on one of 7 grounds specified in Section 30 of the 1954 Act. Apart from certain breaches of covenant, the landlord may be entitled to possession on the grounds that he requires the premises for development purposes or in order to operate his own business. In these cases the tenant will be entitled to some compensation. Needless to say, there are detailed requirements and procedures. We would advise you more fully about this.
A tenant may also trigger a renewal procedure by serving a request for a new tenancy under Section 26 of the 1954 Act. A tenant may wish to do this when he wishes to know with some certainty that he can continue at the premises for a number of years. Again the landlord can object to the new tenancy on the grounds set out in Section 30 of the 1954 Act.
If a tenant wishes to leave at the end of the contractual term then he may need to serve a notice under Section 27 of the LTA 1954. Legal advice should be sought as early as possible otherwise the tenant may find that the tenancy is continuing beyond that date.
“OUTSIDE THE 1954 ACT”
A tenancy may be outside the 1954 Act. This must be an agreed term of the lease and certain procedures need to be followed to ensure from the landlord’s point of view that when the contractual term of the lease expires the tenant has no right to a new tenancy. In this case the tenancy will not continue indefinitely and the tenancy will usually end at the expiry of the fixed term. If the tenant is keen to continue with a new tenancy the landlord will be in a strong position to seek a full market rent (or even an excessive rent). On the other hand a landlord may decide to be fair to his tenant who has paid his rent promptly and has generally been a good tenant.
“WHICH SHOULD YOU CHOOSE?”
It is quite common for landlords to offer to enter into short term tenancies outside the 1954 Act. This gives the landlord a greater degree of control over his property as he knows he can get the premises back at the end of the lease term if he wants to.
From a tenant’s point of view, it may not unduly concern him if he finds he is unable to renew at the end of the term as he may only require temporary accommodation or may be confident that he can find other premises. If the tenant wants to renew he should take advice well before the expiry of the term so that he has time to plan if terms for a new lease cannot be agreed.