Ending Leases

There are various ways in which a lease can end. The appropriate method of termination depends on several factors including 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. This note provides an overview of the most common ways in which a lease may end and highlights some of the key considerations.

Business Tenancies - Landlord and Tenant Act 1954 (the "Act")

The Act offers protection to business tenants when the contractual term of a lease is ending, though the landlord and tenant may contract out of the Act if they wish. This protection gives the tenant a right to remain in occupation of the property and to take a new lease at a market rent. Unless the parties have contracted out before the lease is granted, a protected lease will automatically continue after the contractual termination date. If either party wishes to bring the lease to an end they need to follow a specific procedure.

Termination by the tenant

If the tenant doesn't want the lease to continue beyond the contractual termination date he can either:

Simply vacate by the contractual expiry date; or Serve a s27(1) notice of his intention to vacate on the landlord, giving at least three months' notice In either case the lease will end on the contractual termination date and the tenant will have no further liability.

If the contractual termination date has already passed and the tenant decides that he wants the lease to end, he must serve a s27(2) notice giving at least three months' notice of termination.

Termination by the landlord

A landlord is only able to terminate a protected tenancy if he can prove one of certain limited grounds for termination. The landlord must a serve a s25 notice on the tenant specifying a termination date which cannot be before the contractual termination date and must give between 6 and 12 months' notice. The landlord must specify which grounds he is relying on.

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 upon which he is relying.

There are seven grounds that the landlord can rely on: (a) That the tenant has failed to maintain or repair the property (b) That the tenant has persistently delayed in paying rent (c) That there are substantial breaches of obligations under the lease or objections to how the tenant uses or manages the property (d) The landlord can offer suitable alternative accommodation (e) There are complex subtenancies and the landlord can obtain a better rental return if he lets the property as a large unit (f) The landlord intends to demolish or reconstruct the property, or carry out substantial construction work and could not reasonably do so without obtaining possession - this is the most commonly used ground (g) The landlord intends to occupy for his own business purposes - he must have owned the property for five years before this ground applies

Unless the tenant agrees to vacate, it is up to the court to decide whether the landlord has proved the grounds. If the landlord can prove only "no-fault" grounds ((e), (f) or (g)) then the tenant is entitled to compensation (set at one times rateable...