Learning Outcomes
This article covers termination of leases in leasehold real estate practice, including:
- The principal routes to termination: expiry of term, notice to quit, break clauses, surrender (express or implied), forfeiture, disclaimer on insolvency, and repudiatory breach
- Formalities and procedural requirements: deeds for express surrender, valid service and timing of notices (including section 146 for covenant breaches), and compliance with contractual service provisions
- Strict conditions precedent for effective breaks, such as payment of all sums due, vacant possession, and adherence to specified service mechanics
- Liability and third-party effects: privity of contract and estate on covenants, guarantees and AGAs on assignment, and consequences for sub-tenants, mortgagees, and other occupiers
- Security of tenure under the Landlord and Tenant Act 1954: holding over, section 25 notices, renewal applications, and statutory grounds for opposing renewal
- Enforcement, remedies, and relief: peaceable re-entry versus court possession, relief from forfeiture (especially for rent arrears), damages, compensation, and specific performance or injunctions where appropriate
- Application to realistic scenarios in advising landlords and tenants, assessing rights, risks, and procedural options in both residential and commercial contexts
- Complex and common problem areas: disputed implied surrenders, waiver by acceptance of rent, defects in notice content or service, insolvency disclaimer and vesting orders, and the effect of termination on subleases and accrued liabilities
SQE2 Syllabus
For SQE2, you are required to understand lease termination in real estate transactions across commercial and residential practice, with a focus on the following syllabus points:
- the legal grounds and mechanisms for lease termination, including expiry of term, notice to quit, surrender (express and implied), forfeiture (and relief), disclaimer, merger, break clauses, and repudiatory breach
- the statutory and procedural requirements governing each type of termination, including the 1954 Act for business tenancies and relevant notice periods
- the rights and obligations of landlords and tenants on termination, including the effect of termination on covenants, indemnities, guarantees, and privity of contract/estate
- remedies available post-termination, such as forfeiture, specific performance, damages, relief from forfeiture, and the effect on subleases and overriding interests
- the impact of insolvency, including disclaimer and vesting orders, and issues relating to rent deposits, guarantors, and overriding leases
- contractual and statutory requirements for valid notices, the effect of acceptance of rent after breach, and waiver of termination rights
- issues arising on conveyancing completion and post-completion steps in leasehold transactions (e.g., registration, notices, assignment) and their bearing on leasehold termination
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
- Which legal methods allow an early termination of a lease before expiry of the fixed term?
- In which circumstances can a landlord exercise forfeiture, and what notice is required?
- What is a break clause and how is it commonly exercised?
- Which of the following lease terminations always requires an agreement between landlord and tenant—surrender, forfeiture, or disclaimer?
Introduction
Termination of a lease marks the point at which the leasehold estate in land comes to an end. Each termination method—whether by the natural expiry of a fixed term, mutual agreement, breach, statutory intervention, or operation of law—has unique legal and practical requirements. It is essential to distinguish the applicable route in any scenario, to clarify consequences for the parties and third parties (such as sub-tenants and mortgagees), and to identify the correct remedies and procedural steps.
Key Term: termination of a lease
The legal process or event by which the leasehold estate ends, either automatically (expiry), by agreement, by the landlord’s action (forfeiture), tenant’s repudiatory breach, or otherwise.
Termination by Expiry of Term
A lease for a fixed term ends automatically upon reaching the end of that term, without requiring further notice or action by either party. This is known as termination by effluxion of time. At the end of the contractual term, the right of possession reverts to the landlord, though statutory provisions (such as Part II of the Landlord and Tenant Act 1954 for business tenancies) may extend occupation or require formal termination steps.
Key Term: effluxion of time
The ending of a lease at the expiry of the fixed contractual term.
Where the Landlord and Tenant Act 1954 applies, the expiry of the contractual term does not by itself end the business tenant’s right to possession—statutory “security of tenure” means the tenant may “hold over” unless the landlord follows the Act’s prescribed procedures (e.g., service of a section 25 notice or opposition to renewal on statutory grounds). Therefore, knowing whether a lease is protected or excluded from the Act is fundamental in practice.
Termination by Notice to Quit
For periodic tenancies (those with no fixed end-date, running weekly, monthly, yearly, etc.) the lease continues until brought to an end by a valid notice to quit. Either party may serve the notice, subject to any express contractual restrictions and any statutory modifications applicable (e.g. Rent Act 1977 or Housing Act 1988 for residential leases). The minimum notice period is usually equivalent to the rent period—one month for a monthly tenancy, for example, or six months for annual tenancies at common law.
For residential tenancies, statutory rules may impose longer or more specific notice periods and requirements around service and expiry dates. For periodic business tenancies protected by the Landlord and Tenant Act 1954, only the tenant may terminate the tenancy by notice to quit; the landlord must use the statutory process.
Key Term: notice to quit
A written notice served to bring a periodic tenancy to an end in accordance with its required notice period.
Termination by Break Clause
A break clause is a contractual provision in a lease permitting either the landlord, the tenant, or both to terminate the lease before the natural expiry of the term, on specified dates or upon the occurrence of stated events. The right will usually be exercisable upon giving prescribed notice (such as six months), and may be subject to conditions—such as compliance with lease covenants, payment of rent, or provision of vacant possession.
Strict compliance with break clause conditions and service requirements is essential. Failure to observe notice periods, or the exact method and address for service as set out in the lease, can invalidate an attempted break, leaving the lease continuing.
Key Term: break clause
A contractual provision allowing either party, usually on giving prior notice, to terminate the lease before the contractual expiry.
In commercial practice, break clauses offer flexibility to tenants in uncertain markets and can be an important bargaining chip in lease negotiations.
Termination by Surrender
Surrender occurs when both landlord and tenant agree that the lease should come to an end before its expiry. Surrender may be:
- Express: A formal agreement—usually by deed if the lease itself was created by deed—embodying the mutual intention to extinguish the lease.
- Implied (by Operation of Law): Results from conduct by both parties that is unequivocally inconsistent with the continuation of the lease, for example, when the tenant vacates and the landlord takes possession and re-lets to a third party.
Key points:
- Express surrender, when the original lease was created by deed (as is almost always the case for leases over 3 years), must itself be executed as a deed to be valid. An oral agreement is not sufficient if the lease was originally a deed (see s.52 Law of Property Act 1925).
- Implied surrender is fact-specific and requires clear, mutual conduct inconsistent with the lease continuing. Mere acceptance of the keys by a landlord is not always enough—evidence that the parties treat the lease as at an end is necessary.
On surrender, the lease is “merged” into the landlord’s reversion, and the tenant is released from future covenants, but remains liable for any accrued breaches unless otherwise agreed.
Key Term: surrender
Mutual agreement between landlord and tenant to terminate the lease before expiry; requires a deed if the lease was by deed.Key Term: merger
Where the leasehold and reversionary (freehold or superior leasehold) interests become vested in the same person, and the lease is extinguished.
A surrender may affect subtenants’ rights: generally, where a superior lease is surrendered, subtenants become tenants of the immediate superior landlord, unless their agreements provide otherwise.
Termination by Forfeiture
Forfeiture is the process by which a landlord, relying on a proviso in the lease, brings the lease to an end for tenant default—typically for non-payment of rent, breach of covenants (such as use or repair covenants), insolvency, or other specified grounds.
The right to forfeit must be expressly reserved in the lease. Not every breach automatically entitles the landlord to forfeit; the lease terms and relevant statutory protections must be checked. There are distinct procedures for non-payment of rent and for breaches of other covenants:
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Non-Payment of Rent: For commercial leases, forfeiture for rent arrears can occur without serving a section 146 notice if the lease so provides, and the arrears are outstanding for the required period (typically 14 or 21 days, sometimes more if specified). In practice, most leases provide for action after a defined period of arrears.
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Other Breaches: For all other breaches, section 146 of the Law of Property Act 1925 requires the landlord to serve a formal notice on the tenant. The notice must:
- specify the particular breach complained of
- require the tenant to remedy the breach (if remediable) within a reasonable time
- demand compensation if appropriate.
Only if the tenant fails to remedy the breach or pay compensation as required by the notice can the landlord then proceed to possession. Special rules apply to breaches of repairing covenants in long leases (see Leasehold Property (Repairs) Act 1938).
Key Term: forfeiture
The landlord's right to terminate the lease (re-enter the premises) on the tenant's breach, where expressly stated in the lease.
- Enforcement: Forfeiture may be effected by:
- Peaceable re-entry (commonly in commercial premises; not available for residential property due to statutory protection)
- Court proceedings (for possession): required for residential tenancies and advisable for most commercial tenancies to reduce risk of unlawful eviction.
If the landlord proceeds to re-enter or possess the premises without a court order when statute requires one (e.g. for residential tenancies), they may commit a criminal offence (see Protection from Eviction Act 1977).
- Relief from Forfeiture: Upon and after forfeiture (including after possession by the landlord), the tenant (or anyone with an interest in the lease) can apply to court for relief. For non-payment of rent, the court will usually grant relief if the arrears and costs are paid promptly. For other breaches, the breach must be remedied if possible and compensation paid.
Key Term: relief from forfeiture
The court’s power to reinstate a lease terminated by forfeiture if the tenant remedies the breach, pays arrears, and satisfies other equitable criteria.
Certain types of breaches (e.g., illegal subletting) may be considered irremediable and the court will not always grant relief.
If the landlord takes any action after the breach that recognises the lease as continuing (for example, accepting rent from the tenant after learning of the breach), they may inadvertently waive the right to forfeit for that breach.
Termination by Disclaimer
Disclaimer of a lease arises where the tenant becomes insolvent and the lease is disclaimed by a liquidator (in the case of a company), a trustee in bankruptcy (for individuals), or a personal representative of a deceased insolvent tenant. The effect is to bring the lease to an end, releasing the insolvent tenant from ongoing obligations, but not normally affecting accrued liability, unless statute provides otherwise (see Insolvency Act 1986).
Key Term: disclaimer
The unilateral repudiation of the lease by a tenant’s liquidator or trustee in bankruptcy, ending the tenant’s liability for future rent.
A key point is that disclaimer does not automatically terminate any subleases—the subtenant may apply to have the lease “vested” in them by court order within a certain time, or for the lease to be formally disclaimed such that their interest is protected.
Termination by Repudiatory Breach
Beyond the express and statutory routes, a lease may end if one party commits a repudiatory breach—a breach so serious it goes to the root of the agreement—provided the innocent party “accepts” the breach as bringing the lease to an end. This is rather rare in practice, as most landlord and tenant obligations are dealt with via the other mechanisms. Repudiatory breach is most relevant where a landlord seriously interferes with the tenant’s right to quiet enjoyment, for example, or unlawfully destroys the subject property.
Key Term: repudiatory breach
A breach so fundamental it entitles the innocent party to treat the contract/lease as at an end.
Other Relevant Effects and Remedies
Merger: A lease may be ended by merger if the tenant acquires the superior interest (freehold or head lease), intentionally extinguishing the lease.
Frustration: The doctrine of frustration rarely applies to leases (see National Carriers Ltd v Panalpina), but in exceptional circumstances, such as the permanent destruction of the subject matter of the lease by events outside the parties’ control, frustration may be found, ending lease obligations.
Break Clauses: As highlighted, strict compliance with any condition precedent is necessary. For instance, a break clause requiring the tenant not to be in arrears on rent must be precisely complied with—arrears of only a small amount can vitiate an attempted break.
Security of Tenure for Business Tenancies: Where a tenancy is protected by Part II of the Landlord and Tenant Act 1954, the procedures for bringing the lease to an end or opposing renewal are significantly regulated. See worked example 1.4.
Key Term: security of tenure
The statutory right of some tenants (especially business tenants) to remain in occupation of their premises after the contractual term of their lease expires, unless the landlord follows specific termination procedures under statute.
Tenancy at Will: A tenancy at will arises where a person occupies premises with the consent of the landlord but without any fixed term or periodic rent; it can be terminated by either party at any time and provides no security.
Key Term: tenancy at will
A tenancy with no fixed period or term, determinable by either party at any moment.
Privity of Contract and Estate: With assignments and underleases, liability under lease covenants depends on both privity of contract and privity of estate. For post-1 January 1996 (Landlord and Tenant (Covenants) Act 1995) leases, the outgoing tenant is generally released on assignment unless subject to an Authorised Guarantee Agreement (AGA).
Remedies Available to Landlords and Tenants:
- Landlord’s remedies: Forfeiture, action for debt, damages (subject to common law and statutory limitations), self-help (right to repair and recover costs, often under a Jervis v Harris clause), seeking a guarantor’s payment, recourse to a rent deposit, Commercial Rent Arrears Recovery (CRAR, for commercial leases), injunction, and (more rarely) specific performance.
- Tenant’s remedies: Injunction, action for damages, specific performance, set-off, and (for some breaches, and if the landlord is in repudiatory breach) potentially treating the lease as at an end.
Worked Example 1.1
A tenant under a 10-year commercial lease falls behind with three months' rent. The lease contains a forfeiture clause for non-payment. The landlord gives no warning and, finding the shop empty, changes the locks and retakes possession. The tenant soon tenders all arrears and applies for relief from forfeiture. Is the tenant likely to regain possession?
Answer:
Yes. The tenant may seek relief from forfeiture on payment of arrears and costs. Relief is normally granted if the tenant acts promptly and the landlord has not let the premises to a new tenant.
Worked Example 1.1
A periodic residential tenant pays monthly and has been in occupation for two years. The landlord wishes to terminate the tenancy. What is the minimum notice?
Answer:
The landlord must serve at least one month's written notice to quit expiring at the end of a rental period, and for residential premises, usually a minimum of four weeks' notice is required by statute.
Worked Example 1.2
A tenant's business fails and liquidation follows. The liquidator disclaims the lease. The property was sublet for three years. Is the subtenant’s lease automatically ended?
Answer:
No. The disclaimer terminates the insolvent tenant’s lease obligations, but the subtenant’s interest does not automatically end and the subtenant may apply to the court for the vesting of the lease.
Worked Example 1.3
A landlord wants to end a business tenancy at the end of its contractual term. The tenant has security of tenure under the Landlord and Tenant Act 1954. How does the landlord end the tenancy, and what if the tenant wishes to renew?
Answer:
The landlord must serve a section 25 notice between six and twelve months before the date specified for termination, stating whether or not they oppose renewal and, if so, the ground(s) relied on. If the tenant wishes to renew, they may apply to court unless the landlord can establish one of the statutory grounds of opposition (such as persistent breaches or intention to redevelop/occupy). If no valid ground is established, a new lease on reasonable terms will be granted.
Exam Warning
If a landlord accepts rent from a tenant after a breach, this may constitute a waiver of the right to forfeit for that particular breach.
Revision Tip
Always check the lease for the presence and terms of forfeiture and break clauses—these govern permitted routes for early termination.
Summary
Termination of a lease may occur by expiry of term, by exercise of a break clause, by surrender (express or implied agreement), by forfeiture for breach (with statutory limits and the right of relief), disclaimer (insolvency), merger, or by notice to quit (for periodic tenancies). Special rules govern the effect on subtenants, the application of security of tenure for business tenants, and the operation of relief from forfeiture, waiver, and remedies for breach. Privity of contract and estate govern ongoing liability, and parties must be vigilant as to procedural requirements for valid termination.
Key Point Checklist
This article has covered the following key knowledge points:
- The grounds and methods by which a lease can be terminated: expiry of term, notice to quit, break clause, surrender (express/implied), forfeiture (on breach), disclaimer (insolvency), merger, and repudiatory breach.
- Statutory formalities: notice periods, deed requirement for surrender, section 146 notice for most forfeitures, and insolvency law for disclaimer.
- Security of tenure for business tenants under the Landlord and Tenant Act 1954, including the importance of section 25 notices and renewal rights.
- The effect of termination on subleases and other third-party interests, including applications to vest disclaimed leases or subtenancies.
- The landlord's waiver risk for forfeiture and the tenant’s right to seek relief from forfeiture.
- The significance of strict compliance with break clauses and other lease terms for early termination.
- The remedies associated with each termination route: forfeiture, relief, damages, specific performance, effect on guarantees and rent deposits.
- How privity of contract and estate, and Authorised Guarantee Agreements affect liability for breaches post-termination.
- The need for strict compliance with contractual and statutory requirements—defective service of notice or waiver can prejudice termination rights.
Key Terms and Concepts
- termination of a lease
- effluxion of time
- notice to quit
- break clause
- surrender
- merger
- forfeiture
- relief from forfeiture
- disclaimer
- repudiatory breach
- security of tenure
- tenancy at will