Commercial Tenants, how to end your lease.

By Maggie Kerr

Associate

18 January 2024

Article Insights

With the current financial climate, commercial tenants assessing their business will be deciding what to do with their commercial leased property and asking themselves what their options are. Tenants may be considering moving to bigger or smaller premises or even closing the business due to financial issues. This article aims to address what a tenant can do at the end of the tenancy to end or renew the lease and what to do if they want to leave the property during the term.

Firstly, check the lease and see how long is left to run, check whether you have security of tenure. Briefly, this is the right of a tenant to be offered a new tenancy at the end of an old one. If you do, the Landlord and Tenant Act 1954 (LTA 1954) may apply.

Where the Landlord & Tenant Act 1954 applies

If your lease is covered by the LTA 1954 and has over a year before the end of the term you may want to start considering whether you want to stay and renew your lease or leave the property. If you wish to stay you will need to serve a s26 notice on your landlord. If you want to leave you will need to serve a section 27 notice

Section 26 Notice

A “Section 26 Notice” is served on your landlord giving them between 6-12 months notice that you want the new tenancy. You need to set out the start date for a new lease and the terms of the new lease.

Your landlord can oppose the grant of a new tenancy by serving a Counter-Notice on you within 2 months of your request. Your landlord must state the grounds on which they oppose a new lease. There are seven grounds and the most common are if you have consistently failed to pay the rent or if your landlord wishes to develop the property.

If your landlord has already sent you a Section 25 notice, then you cannot send a Section 26 Notice, you must reply to your landlord and set out the terms you want.

These notices are very tactical, depending on the market rent and the rent you are paying at present, therefore we strongly recommend you speak to us for help and advice.

Section 27 Notice

If you wish to leave the property on the end date in the lease you can serve a “Section 27 Notice” on your landlord giving at least 3 months before the end of your current lease,

Contracted Out Leases

There are situations where a tenant does not have security of tenure, if it is excluded, exempt or the landlord and the tenant have agreed before the start of the lease to opt out of the LTA 1954. If this is the case, you will need to follow the procedure in the lease for ending the lease.

What if you want to leave before the end of your current lease?

Assignment

The lease may allow you to assign the lease to a new tenant. Usually, you need to seek the landlord’s consent. Any incoming tenant will need to comply with the landlord’s reasonable requirements such as, financial status, references and guarantees from the incoming tenant.

Your liabilities under the lease will continue and you could be required to in effect step into the shoes of the new tenant if the new tenant breaches the lease terms.

Sub-Letting

You may wish to sub-let the property. Again, the lease needs to be checked to see if it allows for the premises to be sub-let to a new tenant and whether you need your landlord’s consent. The sub-tenant would pay the rent to you, and you would still pay the landlord. You are still liable to your landlord for all the terms under the lease. In effect you would be managing the property and be responsible for the actions of the sub-tenant.

Surrender

You can ask the landlord if they will agree to a surrender of the lease. If agreed and documented, the lease ends and you as a tenant are no longer liable. Landlords would usually expect to receive compensation from you as your landlord no longer has a tenant who is paying rent and needs to find a new tenant.

We have tenants calling us and telling us they have handed the keys to their landlord. This is not a proper surrender and usually you will remain liable for the rent as the lease still exists. If you have carried out this action, you will need to seek legal advice.

Break Notice/Clause

Your lease may include a break clause which gives you the option to leave the property on serving a notice. For example, in a 15-year lease there may be a break clause on the fifth and tenth anniversary of the lease. There are often pre-conditions to serving a Break Notice and you will need to ensure that any Notice is served correctly.

I refer you to the excellent article by Brodie Pearson last October for more information.

Summary

If you are a tenant and require advice on your options, our Team is ready to help and advise you as to the best option and guide you through the process. If you would like to contact a member of the team, you can email us or call us on 01582 731 161.

Disclaimer: General Information Provided Only
Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.