What landlords need to consider when terminating a commercial lease

Posted on August 31, 2023

Commercial leases are legally binding agreements which outline the terms and conditions under which landlords lease out their commercial properties to tenants.

Commercial Property Leases

No landlord wants empty units, offices premises or vacant shops, and having a good tenant is such an asset. However, sometimes there comes a time when a commercial tenancy needs to be terminated and making sure it is a smooth and legally compliant transition is essential.

The commercial property department at Pearson Solicitors work with a wide variety of landlords to help manage this process as leases can be complex documents with relevant obligations appropriate for the nature of the business.

Essentially as a commercial landlord your lease is a contract between you and your tenant whereby they agree to pay for the right to use your property for a certain time and at a certain rate which can be entered into for a short or long term.

Commercial Landlord and Tenant Disputes

When commercial property disputes arise they can be varied, such as rent arrears, who is responsible for repairs to the building, break clauses and so on. In addition, when the lease comes to a conclusion and the tenant remains then as a landlord you can take action to recover the property under Section 25 of the Landlord and Tenant Act 1954.

Terminating a Commercial Lease

Terminating a commercial lease can be a big step and it’s always advisable to get advice from specialist commercial property solicitors. But essentially you can terminate a business lease if there is:

A breach of repairing covenant
Your tenant is a persistent late payer of rent
There are breaches of other obligations
An availability of alternative accommodation
Sub-tenant – possession required for letting or disposing of whole property
As a landlord you intend to demolish or reconstruct
As a landlord you intend to occupy the premises
You can also use these grounds to oppose a tenant’s application to extend the lease.

Hajirah Zia, works in our commercial property team and whilst she enjoys getting new businesses into premises for our commercial landlords, she is aware that sometimes things can go wrong and litigation is an end result.

“Helping landlords get a great tenant into their vacant property and making sure the lease is managed appropriately is an enjoyable part of my role. There is nothing like that moment when we call a client to say it has all gone through and whilst it’s great to be part of that I know that sometimes tenants have issues and it can go wrong, that’s where forewarned is forearmed for landlords,” she added.

10 Things commercial landlords should consider

1. Review the Lease Agreement:

Before initiating the process of ending a commercial lease, landlords should thoroughly review the lease agreement. Pay close attention to the termination clause, notice periods, renewal options, and any obligations regarding the condition of the property upon termination.

2. Grounds for Termination:

Landlords can typically terminate a commercial lease based on various reasons, such as breach of lease terms, non-payment of rent, illegal activities, or violation of property use clauses. Ensure that the reason for termination is well-documented and aligns with the lease terms and local laws.

3. Communication:

Open and clear communication is essential, it’s always nice to be a good landlord. If a tenant's lease is not going to be renewed, notify them well in advance, as stipulated in the lease agreement. This gives the tenant time to prepare and make alternate arrangements.

4. Serve Proper Notice:

Follow the notice requirements specified in the lease agreement when serving termination notices. This may involve sending written notices via tracked recorded delivery in compliance with legal requirements.

5. Negotiate if Possible:

In some cases, landlords and tenants may come to mutual agreements to terminate the lease early. This could involve negotiating the terms of termination, such as financial arrangements or move-out dates.

6. Consider Mediation or Legal Advice:

If disputes arise during the termination process, it might be wise to seek mediation or legal advice to resolve matters without escalating the situation.

7. Document the Property's Condition:

Before the tenant vacates the property, conduct a thorough inspection and document its condition with photographs and written notes. This will help in case of disputes over dilapidations, damages or required repairs.

8. Returning Security Deposits:

If the tenant provided a security deposit, make sure to follow the legal guidelines for returning it. Deductions for damages should be supported by evidence and outlined in accordance with lease terms and local regulations.

9. Repossession of the Property:

If the tenant fails to vacate the property by the agreed-upon date, landlords might need to pursue legal avenues to regain possession of the property.

10. Legal Considerations:

Always consult with legal professionals familiar with commercial leasing to ensure that the termination process adheres to legal requirements.

“Ending a commercial lease is a process that requires careful consideration, adherence to legal guidelines, and clear communication. Landlords should approach this process with professionalism, aiming for a smooth transition that protects their interests while maintaining a fair and respectful relationship with the tenant,” says Hajirah.

How can we help?

If you are a landlord or tenant in need of legal advice on a property of lease contact our experienced commercial property solicitors on 0161 785 3500 or email enquiries@pearsonlegal.co.uk

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.