Ending a business lease early – how to get it right
When entering into a commercial lease, one usually agrees to a specific length of occupation, or ‘fixed term’. But what can landlords do if they want to take the property back before the fixed term expires? And what can tenants do if they want to leave early, and avoid obligations to pay for the remainder of the fixed term?
There are various ways that commercial leases can be terminated early, but most commonly you might come across the legal terms “surrender” and “forfeiture”. At their simplest, these terms really mean either the commercial tenant giving back or the landlord taking back possession of the premises before the fixed term expires. But be aware: there are legal aspects to address in giving or taking back premises before the expiry of the fixed term.
It is usually a tenant that surrenders a lease where they wish to vacate before the end of the fixed term. Landlords can sometimes offer to accept a surrender too. So how do you surrender a lease? It is a common misconception that a tenant simply handing the keys back to their landlord has the effect of terminating their lease. It won’t. To infer a surrender by actions, both the landlord and the tenant need to do something that is inconsistent with the continuation of the lease. This can lead to difficulties and arguments as to who did what and when. It is always preferable, for the sake of clarity, to enter into a formal Deed of Surrender.
Forfeiture is an action carried out by a landlord. A landlord may take the step of forfeiting a lease when their tenant has fallen behind with their rental payments, or if they are otherwise breaching terms of the lease. Forfeiture amounts to the landlord changing the locks and taking back possession of the property. Depending on the contents of your written lease, a landlord may be able to do this without any prior warning. Sometimes, a Court order is required.
Do you need legal advice?
It is important to obtain specialist legal advice prior to forfeiting a lease, to ensure that it is done correctly and in compliance with the law. Getting it wrong can prove costly because an unlawful forfeiture by a landlord may then require the landlord to have to compensate the tenant.
Even if the lease is legally forfeited, a tenant may claim for relief from forfeiture through the Courts. A claim for relief is likely to be successful if the tenant pays all of the arrears that may be due, and so prompt and sensible negotiations with the assistance of a specialist lawyer can help resolve the matter before the relevant Court hearing date arrives.
If you are a landlord or tenant in need of expert legal advice with regard to surrender, forfeiture or relief from forfeiture, our property litigation specialist Stefania Bennett can advise on the best course of action for you particular circumstances.
If you have any queries about terminating your lease, whether you are a landlord or tenant, send Stefania an email at email@example.com.