Commercial properties are often let by way of a commercial lease agreement or a license agreement.
Commercial lease agreements are governed by the Landlord and Tenant Act 1954, certain provisions of this Act the landlord and tenant can mutually agree to opt out of.
A commercial property lease usually continues until its end date unless it includes a break clause. A break clause is a line in the lease that allows the landlord, tenant or both to end a lease early without facing a penalty. It includes an agreed date when the lease can be ended.
If a Landlord wishes to end a fixed-term commercial lease early as a result of a breach of the lease committed by the tenant, then they may be able to do so if there is a forfeiture clause in the lease. The procedure for forfeiture will depend on how the Tenant has breached the lease and what the terms of the forfeiture clause are. For example, if the tenant has not paid rent, then there is usually no need for the landlord to serve notice on the tenant. If the breach is of a different nature, then the landlord may have to serve a section 146 notice on the tenant.
Terminating After The Lease Has Expired
Ending a commercial lease on or after the expiration of its fixed term depends on the security of tenure. Security of tenure is the right for the tenant to occupy business property after the lease comes to an end. If the lease grants security of tenure, the lease will continue after the expiry date if the tenant remains in occupation of the property for business purposes. In this scenario the landlord or tenant must serve one of the following notices to terminate the lease:
Section 25 notice – if the Landlord wishes to determine the lease and can satisfy one of the grounds in section 30 of the Landlord and Tenant Act 1954, serving a hostile section 25 notice will prevent the Tenant from taking a new lease. Examples of grounds under the Act include breaching repairing obligations, persistent delays in paying rent or the Landlord redeveloping the property.
Section 26 notice – if the Tenant wants to terminate the lease, a section 26 notice can be served.
If both parties opt out of the legislation as part of the lease, there is no automatic right to security of tenure. Under these circumstances, a Tenant can vacate the property without providing notice by informing the other by writing. If a Tenant refuses to vacate the property, the Landlord will usually need to undertake possession proceedings.
License agreement for commercial properties can be terminated by way of a notice to quit. A notice to quit could be served based on a breach of contract made by the tenant during the fixed term of the license.
A license agreement can also come be terminated on or after the end of the fixed term by serving a notice to quit on the tenant.
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