How can a lease end?

The appropriate method of termination depends on whether the lease has the protection of the Landlord and Tenant Act 1954, which party wants to bring it to an end, whether the lease is coming to its contractual end or one party wants to get out of it early, and whether the tenant is in breach of any of the lease terms.

A protected lease

If the Tenant wants to end the lease he can:

• Vacate by the contractual expiry date
• Serve a s27(1) notice giving at least three months’ notice
• If the termination date has passed he must serve a s27(2) notice giving at least three months’ notice of termination.

If the Landlord wants to end the lease he can:

• Serve a s25 notice specifying a termination date which cannot be before the contractual termination date and must give between 6 and 12 months’ notice and specifying which grounds he is relying on.

1. If the Tenant has already requested a new tenancy (using a s26 request) and the Landlord does not want to grant this, he must serve a counter notice within two months of receiving the s26 request, setting out the grounds of opposition.

Grounds for termination

The tenant has failed to maintain or repair the property

The tenant has persistently delayed in paying rent

There are substantial breaches of obligations under the lease or objections to how the tenant uses or manages the property

The landlord can offer suitable alternative accommodation

There are complex subtenancies and the landlord can obtain a better rental return if he lets the property as a large unit

The landlord intends to demolish or reconstruct the property and could not reasonably do so without obtaining possession

The landlord intends to occupy for his own business purposes – he must have owned the property for five years before this ground applies

A contracted out tenancy

Effluxion of time

 A contracted out tenancy terminates automatically and without notice at the end of the term and the tenant must give up possession and make sure that any subtenants vacate.

The landlord or his managing agents should contact the tenant at least six months prior to lease expiry to ascertain his plans. If a new lease will not be completed on time, then best practice is for the landlord to send an open letter demanding possession of the property upon lease expiry and to consider putting a rent stop in place to ensure that no rent is demanded or collected after the lease has expired (to avoid a periodic tenancy arising).

Exercising a break option

A break clause is a right for the landlord, tenant or both to end the lease early, before the fixed term expires. You should always take legal advice before exercising a break as everything that the lease says about the notice must be exactly followed, including how much notice must be given, the format of the notice, who may sign the notice and how the notice may be validly sent to the other party. Tenant’s break right are usually dependent on:

A requirement that rent due be paid up to date

A requirement that the tenant gives vacant possession

A general condition that the tenant is in compliance with all its covenants – this is very difficult for a tenant to comply with as there will nearly always be a minor breach clause.

Surrender

A surrender is not effective unless it is accepted by the landlord.

A surrender may be express or it may take place by operation of law

When a lease is surrendered, the term ends and the landlord has the right to possession. Both parties are released from future covenants but remain liable for past breaches, unless the surrender deed provides a full release.

Any subtenancies which had been granted out of the surrendered lease do not fall away and the landlord becomes the direct landlord on the terms of the subtenancy.

Forfeiture

A “right of re-entry”, or “forfeiture right” is a landlord’s unilateral right to bring a lease to an end in the event of a breach by the tenant.  If a lease is successfully forfeit all interests created out of it will fall away, including those of any subtenants or mortgagees, subject to any relief that they might claim.

As soon as the landlord becomes aware of a breach of covenant occurring he must decide then whether to determine the lease or allow it to continue.

Disclaimer

When a tenant has gone into insolvent liquidation, the liquidator can disclaim the tenant’s liability under a lease.

Provided that the landlord does not take back possession of the disclaimed property, the disclaimer only brings the tenant’s liability to an end: it does not end the lease itself, meaning that the rights and liabilities of guarantors and former tenants continue. A subtenant (or other entitled party such as a guarantor) can apply for a vesting order, meaning that the applicant becomes the tenant under the lease. The landlord is also able to apply to vest the lease in one of these parties and if they decline then their rights, interest and liability in respect of the property will end.

Help

Time is of the essence when dealing with the termination of a lease so take professional advice to avoid incurring unnecessary liabilities.