Part II of the Landlord and Tenant Act 1954 (“the Act”) gives business tenants who occupy premises for business purposes “security of tenure” which means that their tenancy does not automatically come to an end at the end of the fixed term of the lease. Instead the tenancy continues until it is brought to an end in one of the ways prescribed by the Act.
Even in the case of leases that are not granted for a fixed term (what are known as “periodic tenancies”), for example a monthly tenancy, then they still cannot be terminated until brought to an end as required by the Act.
What methods are available to the parties to bring a business tenancy to an end?
- Service of a section 25 Notice on the Tenant
This is a notice that a Landlord would serve on a Tenant to bring the tenancy to an end which can be served at any time at least 6 months but not more than 12 months before the termination date specified in it.
The section 25 notice tells the Tenant whether the Landlord is willing to renew the lease and if so sets out the Landlord’s proposals for renewal (which will usually include an increase in rent) and, if not, which of the seven statutory grounds that the Landlord is relying upon in refusing to renew.
If the lease is granted for a fixed term then the section 25 Notice cannot bring the term to an end before the end of the fixed term specified in the lease.
- Forfeiture of the Lease
If the Tenant has failed to pay rent or has failed to carry out its other obligations contained in the lease such as repairing obligations then provided that the Lease contains an appropriate forfeiture clause then the Landlord may be able to end the Lease before the end of the fixed term.
- Service of a section 26 Notice on the Landlord
Rather than waiting for the Landlord to serve a section 25 Notice a Tenant can instead serve a section 26 notice and request a new tenancy from the Landlord under section 26 of the Act. A Tenant may wish to do this if market rents are falling.
Section 26 requests are not available to periodic tenants or tenants whose leases are granted for a term of 1 year or less.
- Service of a section 27 Notice to terminate the Lease
In the case of a fixed term lease if the Tenant knows that they do not wish to renew their lease then provided that the Landlord has not already served a section 25 Notice the Tenant can either:
- serve a notice under section 27(1) of the Act and give the Landlord 3 months’ written notice so as to avoid the lease continuing at the end of the fixed term; or
- serve a notice under section 27 (2) of the Act if there is less than 3 months left before the fixed term is due to expire, which will bring the lease to an end at the end of the 3 months’ notice period.
A Tenant who wishes to terminate their lease may offer to surrender it to their Landlord. Similarly, a Landlord who, for example, wishes to redevelop the property may ask their Tenant to consider surrendering their lease.
In each of these cases it is up to the parties involved to decide whether they are willing to proceed with the surrender and if so on what terms.
If accepted then usually a deed of surrender will be entered into to record the agreed terms.
- Break Clauses
Leases often contain break clauses which entitle Tenants or Landlords or both to terminate the Lease either on fixed pre-determined dates or at rolling intervals during the lease term.
If the Lease contains a break clause then there may well be pre-conditions attached to the exercise of the break clause which will need to be observed in addition to the giving of the requisite notice. For example, in the case of a Tenant’s break clause rent will usually have to be paid up to date.
It is recommended that care is taken when considering how to bring a lease to an end and that legal advice is sought to ensure that all options are fully considered.
For further guidance on ways to end a business tenancy and any other commercial property matters, please contact our Commercial Property Solicitor:
033 3344 9600
or email email@example.com