Understanding Lease Termination

Termination of lease

A lease is a contract, wherein the lessor and the lessee enter into an agreement with specific terms and conditions. A contract creates binding legal obligations and rights as per the terms in the lease. A lease is the “grant of exclusive possession of land for a defined length of time.” If the lease is for a fixed term, then there is a fixed term tenancy for the number of years that are mentioned as the term of the lease in the lease agreement. The fixed-term tenancy automatically comes to an end at the end of the term. In this case, Trent Products and Graybank have a fixed term tenancy because it is a ten year lease at an industrial manufacturing complex. The issue is whether the tenancy can be terminated at an earlier point than when it was to end.

The Landlord and Tenant Act 1954 provides some ways in which tenancies can come to an end as per the provisions of Sections 25 to 27 of the Act. There are three methods: forfeiture, surrender, and notice to quit by landlord. A notice to quit can be served by the tenant upon the landlord under Section 27 (1). However, this relates to prevention of a statutory continuation tenancy under Section 24. These provisions are not applicable in this case.

Fixed term leases can be terminated as per the ‘break clause’, which is a clause that allows either the tenant or the landlord to bring the lease to an end, by giving a notice to the other party as per the terms of the lease. The break clause has a stipulation of time period of notice, for example, 3 months, which is the period of notice that needs to be given to the other party. In fixed term tenancies, the only way possible to terminate the lease by giving a notice is to include a break clause. Notice cannot be given if there is no break clause in the lease agreement. In the lease agreement, a clause can be entered which allows tenants to serve a break notice on the landlord by sending the notice to the address mentioned in the agreement itself.

The lease can be terminated by reaching an agreement with the landlord to end the lease even before the end of the term. A fixed term lease can be amended if both the landlord and the tenant agree to the changes. As amendment is based on an agreement between the two parties, both the tenant and the landlord must consent to the amendment. The tenant can also negotiate with the landlord to surrender the lease. A surrender can be given effect through a deed or conduct bringing the lease to an end.

If there is no break clause, and the landlord is not amenable to amendment, then the tenant can take other steps for ensuring that no legal liability is attracted for bringing the lease to an end. The tenant can pass the lease on to someone else by providing a guarantee for the new tenant if the landlord so desires. Another option that is open to the tenant is to sublet the premises to another person, in which case Trent Products remain the tenant responsible to the landlord, while they are not really in possession and are not trading from the premises. In future, the tenants can have the option of a periodic tenancy as well because this would allow them to terminate the lease by giving notice to the landlord. However, the drawback with this

option is that it can be ended at anytime at the option of the landlord, which makes it unsuitable for commercial tenancies. On the other hand, a fixed tenancy with a break clause offers more security of tenure to the tenant. Discover additional insights on Safeguarding the Interests of Minors in Property Disputes by navigating to our other resources hub.

To conclude, a commercial property fixed term lease continues till the end of the term of the lease unless there is a break clause that allows either party to end the lease early. If there is a break clause in the lease then there is no penalty for the party that takes advantage of the clause. However, in the absence of the break clause, the tenant can pass on the lease to another party or can sublet the premises to another person. In future lease agreements, a break clause should be inserted in order to leave the option open to the parties to terminate the lease at a time before the tenancy comes to an end.

Bibliography

Garner S and Frith A, A Practical Approach to Landlord and Tenant (Oxford University Press 2010).

Cooke E, Land Law (Oxford University Press 2017).

Stewart M and Portman J, Leases & Rental Agreements (Nolo 2017).