Specialist Commercial Property Lawyers
Terminating a commercial lease does not have to be a legal drama. As you will see from our tips, the most important thing is to actually understand what’s in your lease – because that is what governs termination. And that’s why, when clients sometimes ask us the question “Do I need a solicitor to rent commercial property?”, our answer is always yes. And as you will read below, there are plenty of good reasons for that.
And if you consider the following top tips and seek legal advice on the right way to carry out your commercial eviction, then ending your business lease should be relatively pain free.
See below for the information you need in terminating your lease – whether you are a commercial landlord or tenant.
Need a specialist commercial property lawyer to help you get out of a commercial lease? Call us now on FREEPHONE 0800 1404544 for FREE Initial Advice on the phone.
Commercial Lease Termination – Four Options for Business Tenants
Say you’ve taken on a long commercial lease but for one reason or another you want to get out of it – maybe you’re downsizing, or better still have outgrown your current space or perhaps want to buy your own business property. What are your options?
Our commercial property lawyers suggest you first consider one of the four alternative options;
1. Assignment – you may find under your current lease that you’re able to go for an assignment – i.e. effectively you sell on the lease to new tenants. Bear in mind that in doing so, any permitted assignment almost always needs the consent of the current landlord. Depending of course on your lease, the landlord may be allowed to insist on conditions on any assignment – possibly including requiring you, as outgoing tenants, to act as a guarantor for the new tenant.
2. Deed of surrender – you might be able to negotiate with your current landlord an early termination
3. Subletting – again, depending of course on the terms of your current lease, you may find yourself permitted to sublet the whole premises – or at least part of them. Bear in mind that any subletting may need the consent of your current landlord. This may not get you out of the lease entirely – but hopefully the rental income from subletting will cover part, if not all, of your current rental obligations.
4. Exercising a break clause – the easiest thing, of course, if your current lease contained such a clause, is simple termination under that break clause. It’s amazing, however, how many commercial property leases don’t contain a break clause – even in very long leases. Even the best businesses can’t foretell the future – so it’s always best to push as hard as you can to insert break clauses into commercial leases – another good reason to make sure that when you do enter into any lease, you check the terms out first with a specialist commercial property lawyer.
If you are experiencing problems getting out of your current lease, or you’re thinking of entering into a new lease and want to make sure that you are not putting yourself at unreasonable risk, get in touch with our commercial property solicitors – who will be more than happy to give you FREE initial legal advice over the phone.
Commercial Lease Termination – seven things to watch out for
1 – Identify the correct party
Before serving a ‘notice to terminate’ on your landlord, ensure that it is coming from the correct party. For example, although you may be the managing director of a company, if the notice appears to come from you personally and does not come from the company, that error could render the notice invalid.
2 – check the correct notice period
When calculating your notice period in relation to your contract end date, be aware of exactly what your lease provision is saying. For example, if your lease contains terms such as ‘including’ or ‘commencing on’ this means that your lease will expire on the day before the date in the relevant year or month. If the agreement uses the term ‘from’ it will have started the day after the ‘from’ date.
3 – when terminating, make sure you serve any notice correctly
Check the lease for any provisions relating to notice, such as the manner in which, it should be served and within what period of time. If the lease requests that you must serve the termination in writing with 6 months notice, then an email 4 months prior to a proposed termination date will not be legally sufficient. If the lease is silent on this point (i.e. it doesn’t deal with the issue at all), then s.27(1) Landlord & Tenant Act (1927) provides that you can leave the notice at the landlord’s last known place of business. If you do this, then service of the notice will be deemed at the time when it was left at this address.
Note however this only applies if hand delivered. If you post the notice then it will be deemed to be received when the landlord physically picks it up.
4 – check who is the competent landlord
With a tenant termination, the notice does not have to be served upon the ‘competent’ landlord. A competent landlord is the original head landlord, for example if a subletting has occurred. A tenant is able to serve a commercial lease termination notice on the immediate landlord.
5 – double-check what rent you need to pay
If there is no break clause in the lease and you want to vacate the premises before the contract end date, then your commercial rent paying obligations will continue until that date. If you are not planning on leaving the premises before the contract end date, then you should give notice (subject to any lease provisions) 3 months prior to that date.
6 – make sure you don’t end up in breach of the lease
Ensure that all your lease provisions have been fulfilled prior to serving the termination notice. For example make sure that all rent payments are up to date and repair covenants have been complied with. If you have breached any of the terms of the lease then your notice may be rendered invalid.
7 – avoid a big bill for dilapidations
On termination, the landlord will inspect the property for damages or failure to keep the building adequately maintained. It is always a good idea to keep written and of the condition of the property when you took out the lease. You should consider how much of your deposit money may be taken if any dilapidations are found. Taking photographic evidence of the property in case you have to argue the extent of damage with the landlord is always a good move.
The question of repair is often the biggest problem with ending a commercial lease – especially if you are subject to a fully repairing lease. Try to make sure that when you vacate the building, it has been properly repaired and maintained. The chances are that you will be able to deal with any dilapidation issues at a much cheaper price than your landlord. Failing to do so could land you with an absolutely huge bill from your landlord or managing agents – who, unlike you, will have no particular incentive to keep the repair bill down.
If you have any queries about business lease termination, then always seek legal advice from a specialist commercial lease agreement solicitor before serving a notice on the landlord. If you fail to correctly terminate your lease, you may find that you inadvertently end up with an expensive and unwanted lease extension.
For business landlords – commercial eviction and forfeiture
When can I evict a commercial tenant?
You may want to evict a commercial tenant because they have breached the terms of their lease, for example, by failing to pay the rent. Alternatively, you may want them to leave so that you can redevelop the property. The lease will set out your rights and provide guidance on the process that you need to follow to forfeit the lease and take back your property. This can include giving the tenant notice of the breach if the breach is for something other than non-payment of rent and allowing them a period of time to remedy it.
Commercial eviction for non-payment of rent
One of the main reasons landlords evict commercial tenants is for non-payment of rent. A business lease will typically include a forfeiture clause stating that the landlord has the right to take back the property if commercial property rent is not paid for a set period.
As a landlord, you must ensure you do not inadvertently waive your right to forfeit the lease. For example, even if there are clear commercial property rent arrears, just discussing payment options with the tenant or accepting part payment may mean that you could lose your right to evict the tenant. You could then face a claim for unlawful forfeiture and trespass.
When a commercial tenant fails to pay their rent, you do not usually need to give them notice of your intention to forfeit the lease. A lease generally includes the right to peaceably re-enter the property and change the locks. A bailiff and locksmith will usually deal with this.
They will put a notice of repossession where it is visible from the outside of the property. The notice should advise the tenant that the lease has ended. Where peaceable re-entry is possible, you can avoid court action and commercial eviction becomes comparatively simple.
If peaceable re-entry is not possible, you can apply to the county court for a possession order. This is a longer process than peaceable re-entry.
Following peaceable re-entry or a court order, the tenant may be able to apply for relief from forfeiture. If they pay all of the arrears plus your legal costs, the court has the option to grant them relief. It can take into account both your conduct and the tenant’s conduct when deciding what order to make. If an order for relief of forfeiture is granted, it automatically reinstates the lease.
For this reason, you may want to wait until you know whether the tenant will ask for relief from forfeiture before you look for a new tenant.
Breach of lease terms by a commercial tenant
If the tenant has breached other terms of the lease and you want to evict them, you must follow a statutory process and issue and serve a notice under section 146 of the Law of Property Act 1925, commonly referred to as a forfeiture notice. Examples of breaches of a commercial property lease include unlawful subletting, not maintaining the property in good repair and condition and failing to insure the property.
The section 146 notice must include:
· Details of the breach
· If the tenant can remedy the breach, a statement requiring them to do this by a specified date
· Any amounts sought for payment of compensation for the breach
If the breach can be remedied, it is essential to allow the tenant to do this or the notice will be void. The time you allow them must be reasonable.
You can have the notice professionally served so that you have proof of service for the courts, should legal action be necessary.
Breach of repair obligations by a commercial tenant
Where the breach relates to the tenant’s obligation to keep the property in good repair, the Leasehold Property (Repairs) Act 1938 (the Act) applies, provided that the lease was initially granted for seven years or more and at least three years are remaining.
If the Lessee serves a counter notice within 28 days of service of a notice pursuant to Section 146 Law of Property Act 1925 claiming the benefit of the Act, it limits landlords’ rights to claim forfeiture and damages for disrepair and requires the court’s permission before they can be claimed.
If the tenant relies on this Act, then as the landlord you will need to show that certain points are met in order to obtain the court’s permission, including that the property has substantially decreased in value as a result of the tenant’s failings.
Commercial eviction – don’t risk waiving your right to forfeiture
If you’re a business landlord and you’re looking at commercial eviction, you have to be really careful. That’s because certain, apparently simple, actions by a landlord can waive the right to forfeiture of a commercial lease entirely. It is essential to understand what these are and how they can arise to avoid losing the rights you need.
If a landlord acts in a way that recognises the continuing existence of the lease, they will not usually be able to forfeit the lease.
As a landlord, once you are aware that you can forfeit the lease, you need to decide whether or not you wish to do so. If you continue as if the lease is still effective, you will usually lose your right to forfeit it, unless the breach of the lease is a continuing one.
A waiver can occur where:
· You are aware of a breach of the lease and allow it to continue, whilst seeking rent
· You take unequivocal action which recognises the continuing existence of the lease
· You communicate your action to the tenant
If you demand or accept payment of rent which is due after the date of the breach of the terms of the lease, then you will have re-affirmed the existence of the lease and waived the right to forfeit it.
Where the right to forfeit is lost, you will have to wait for another breach to occur to reinstate the right.
Actions that recognise the continuation of the lease include demanding overdue rent, accepting late rent payments, discussing the lease with the tenant and sending notices pursuant to the terms of the lease.
How can I evict a commercial tenant?
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Serving and enforcing a section 146 notice
If you serve a section 146 notice following a breach of the lease, you need to follow the correct procedure. You can ask a process server to serve the notice or hand it to your tenant, post it in an addressed envelope through their door. However, you must ensure that you have evidence of service.
If you deliver the notice yourself, you will need an independent witness to confirm your actions. Additionally, any address they have given to you to serve notices at should be followed and if the lease has specifications on how documents are to be served, then this should be followed, such as any provision connected to Section 196 Law of Property Act 1925, which would require any postal notices to be sent by registered/recorded post. A notice still needs to be served though and to that end, if it is returned, then alternative methods of service will be required in addition to this.
A commercial eviction lawyer can draft the notice on your behalf, arrange for service and obtain proof of service.
If the tenant fails to comply with the requirements set out in the notice, you can ask the county court for a possession order.
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Using a break clause
If your commercial lease contains a break clause, you can use that to end the lease. You must follow the process set out in the lease, ensuring that you serve a notice in the right format, include the correct information and give the required amount of notice. but when done correctly, this is probably the most straightforward method of commercial lease termination.
How is a commercial eviction enforced and business property taken back?
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Peaceable re-entry
If you have served a section 146 notice on the tenant and they have not remedied the breach of the lease, you can peaceably re-enter where possible only if your lease has a re-entry clause. A bailiff may be able to deal with this if the tenant has left the property. However, if the tenant is still at the property, you cannot enter without permission and you may need a possession order.
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Obtaining a possession order
A commercial eviction lawyer can apply for a possession order on your behalf if you want to handle each step correctly, reducing the risk of the court declining your request.
The first step is to file a claim with the court together with all available evidence in support. This will include a copy of the lease, a copy of the section 146 notice, evidence of service of the notice, and proof of the breach of the lease terms.
The court will notify the tenant and set a date for a hearing. At the hearing, you or your advocate will make your case for possession and the tenant will have the chance to put their case. If the court decides to make a possession order, it will order the tenant to leave the property by a specified date.
If the tenant fails to do so, you can take steps to enforce the order.
Commercial eviction – how do I enforce a possession order?
If you have a possession order, someone with the necessary authority must enforce it. This is either a county court bailiff or a high court enforcement officer (HCEO). A bailiff may take several weeks to deal with the matter. If you ask the county court to transfer your case to the high court and they agree to do this, you can instruct an HCEO. They will usually deal with the repossession much more quickly, often within one week. You will need the consent of the county court to move your case to the high court.
