A commercial lease is a legally binding contract, but there may be times when a business needs to terminate the lease ahead of schedule. This could be due to reasons, such as business expansion, relocation, or financial challenges.

Getting out of a lease is a little more complex than just telling your landlord you no longer want the premises and handing over the keys, or a landlord telling their tenants they want to take back their property – various steps come into play.

There are a few different ways a commercial lease can be ended early, however, the options available can vary depending on whether you are the tenant or the landlord.

I’m a tenant looking to end my lease early

There are typically four main solutions for a tenant to terminate their commercial lease including break clauses, assigning your lease to somebody else, subletting, or surrendering your lease.

The option you choose will be determined by the clauses within your lease.

If your lease includes a break clause, then this enables either your landlord or you the tenant, to terminate your lease after a predetermined period. However, many break clauses have notice requirements you need to adhere to.

For instance, the clause may state that you must provide the landlord with a minimum of two months’ written notice. Failing to do so could render your break clause invalid.   Break clauses can also include other conditions and so it is important to check the wording carefully before proceeding.

In some cases, your lease may allow you to find a new tenant to assign the remainder of your lease to. This usually requires the landlord’s consent, and if so, the new tenant must meet the landlord’s criteria.

Landlords typically verify the new tenant’s financial status, references, intended use of the premises, and any potential requests for alterations.

If you don’t have the option to break the lease or transfer it, you should check whether there is a clause that allows you to sublet your lease. This would allow you to leave the property and have your own tenant reimburse you on rent payments, but it wouldn’t relieve you of the obligations under the lease.

If none of the above options are viable for you, then you may be able to surrender your lease by negotiating an early end to it, however, you could be expected to pay the landlord.

If you are a tenant looking to break your commercial lease early, seek professional advice to understand your options based on your current lease and ensure you are fully aware of your legal obligations.

I’m a landlord looking to end my lease early

A landlord’s options for ending a lease early are more limited.  Unless the lease includes a landlord break clause, the Landlord would need to negotiate a surrender with the Tenant.  As the Tenant is under no obligation to agree a surrender (and termination of the lease is likely to be disruptive/costly for the Tenant), the Tenant is likely to demand a substantial payment.

Assuming the lease includes a forfeiture clause, the Landlord will have the right to terminate a commercial lease if the tenant breaches a lease term.  The forfeiture procedure varies based on the type of breach, for instance, if the tenant doesn’t pay their rent, you typically do not need to serve notice on the tenant. However, for other breaches, you might be required to serve a notice under Section 146 of the Law of Property Act 1925.

Example scenario

Suppose your tenant has made significant, unauthorised alterations to the property, breaching the lease terms.

After confirming the presence of a forfeiture clause in your lease, you decide to forfeit the lease due to this breach.

Since this type of breach requires serving notice, you serve a Section 146 notice under the Law of Property Act 1925, specifying the breach and giving the tenant a reasonable time to remedy it.

If the tenant fails to correct the breach within the given timeframe, you may physically re-enter the property to terminate the lease, provided the tenant has vacated the premises. If the tenant remains in occupation, you will need to initiate possession proceedings based on the valid forfeiture.

Seek professional advice

Whatever the reason for you wanting to end your commercial lease early, it is always worth getting professional advice from a commercial property lawyer.

If you would like personalised advice on ending your commercial lease, please contact our team.