Can I break a Lease – Landlord/Tenant

The short answer is, it depends.

It depends on:

  1.  the provisions in the lease; and/or
  2.  the negotiating strength and bargaining power of the parties to the lease.

Please see below the possible scenarios that give rise to either the landlord or the tenant (or both) having rights to terminate the lease:

  • Break clause: A break clause is a provision in a lease giving an option to a landlord, a tenant or both, to terminate the lease on a certain date (known as the break date). If the lease does contain a break clause, then the relevant party (normally the tenant) can exercise the break option provided it observes and complies with the break conditions (which will be set out in the lease). Failure to exercise the break clause conditions correctly will render the break option invalid and the right to terminate will be lost.
  • Surrender: The landlord and/or tenant may wish to negotiate an early termination by way of a surrender. A surrender will often only be desirable if reasonable consideration is being offered to the other party as a sweetener to terminate the lease. A surrender premium is a payment payable by the tenant to the landlord to terminate the lease and a reverse premium is a payment payable by the landlord to the tenant to terminate the lease. Of course, this is a matter of negotiation and will largely depend on the bargaining strength of each party and the consideration being offered to the other party to bring the lease to an end. The party wishing to terminate the lease will, as part of its negotiation, undoubtedly offer to settle the other side’s professional costs and indeed any other reasonable costs in connection with the surrender.
  • Assignment: The tenant may wish assign (i.e., transfer) the lease to someone else if the lease so permits. Most leases will not permit an assignment without the landlord’s prior consent. Most commercial leases require the tenant to obtain a ‘licence to assign’ from the landlord prior to parting with the lease. In most modern leases, an outgoing tenant will be required to enter into an authorised guarantee agreement with the landlord (the purpose of which is to guarantee the performance of the incoming tenant) as a condition of an assignment. Depending on the terms of the lease, the landlord may also impose further conditions before they will consent to such an assignment. The assignment provisions in the lease needs to be carefully scrutinised and understood before an application to the landlord for consent to an assignment can be made.
  • 1954 Act Notices: For leases protected by the Landlord and Tenant Act 1954 (1954 Act), a Section 25 Notice can be issued by the landlord to bring the lease to an end at or after the contractual end date of the lease, provided that certain criteria are met. Conversely, a tenant can serve its landlord with a Section 27 Notice to bring the lease to an end at or after the contractual end date. If the tenant wishes to renew its lease and serves a Section 26 Notice, a landlord may wish to object to the Section 26 Notice by serving a Counter Notice within a specified period, citing the ground that the landlord is wishing to rely upon in terminating that lease.