Business Lease Renewals and Terminations

If you are a landlord or commercial tenant, circumstances may mean you wish to terminate the lease or renew it.

Both landlords and tenants will benefit from obtaining legal advice from our experienced team because we can ensure your interests are protected and because of the possibility of incurring liability if the correct steps are not followed. We can advise you of your obligations depending on the terms of your tenancy.

Terminating a Commercial Lease

• The method for terminating a business lease will depend on the terms of the lease and whether the lease is for a fixed term. 
• If there is a ‘break clause’ in the lease, it can be terminated when the break clause falls if two months’ notice is given.
• Increasing rent in line with the rent review in the lease will not mean the tenant can terminate the lease unless the rent is manifestly unfair.
• The lease can be terminated early if the landlord agrees, or if the lease allows for subletting or reassignment. If the lease is assigned to another tenant, the landlord can ask the first tenant for a guarantee, which will continue that tenant’s liability. Subletting will also continue the liability of the first tenant. We can advise you on the specific liability you will incur for subletting or assigning the lease.
• The landlord can only end the lease for breach of covenant or rent arrears.
• If the lease is for a fixed term, the expiration of the fixed term date will terminate the lease unless there is an agreement between the landlord and tenant that the lease will continue. If the tenant stays on, he or she must give three months’ notice to terminate the lease.
• There may be costs to the tenant for terminating the lease early. If the landlord uses professional advisors in the negotiation process, you are likely to be liable for their costs. There is also often a payment to be made to the landlord for terminating the lease early. The longer the negotiations, the larger the payment.

Renewing a Commercial Lease

• Most commercial leases will have a right to renew. This is because of the statutory rule in the Landlord and Tenant Act 1985 Part 2. Commercial tenants should have security of tenure and the right to renew on similar terms to the original lease.
• Certain tenancies do not have automatic renewal rights. These include farm business tenants, mining tenants, service tenants employed by the landlord, fixed-term leases of less than six months, or leases which waived the right to renew upon signing.
• If you have breached the terms of the lease, or the landlord wants to occupy the property themselves, the landlord can refuse renewal.
• If the landlord can provide different premises for the tenant, renewal can be refused.
• The landlord can also refuse renewal if he or she intends to demolish the property or reconstruct it.

To discuss the legalities surrounding business lease renewals and terminations further, please call us on 020 8290 0333 to speak to one of our solicitors.