Understanding how a lease can be terminated is essential for both property and commercial practice. A lease may end in a variety of ways, each with different legal consequences. The method of termination determines what happens to the parties' rights and obligations, whether the tenant must vacate, and what remedies are available. This topic covers the main methods of termination and the remedies for breach of leasehold covenants.
Forfeiture is the most heavily tested aspect of lease termination in the SQE. You must understand the distinction between peaceable re-entry and court proceedings, the requirements of s.146 LPA 1925, and the court's discretion to grant relief under s.210 CPO 1945. Pay particular attention to these areas.
The most straightforward way a lease ends is by the effluxion of time -- the fixed term expires. On the contractual end date, the lease automatically terminates and the tenant's estate comes to an end. The tenant must vacate the property and return possession to the landlord. No notice is required for the lease to end, though the parties may have agreed notice periods in the lease.
On expiry of the fixed term, the tenant loses the right to occupy. If the tenant remains in occupation without the landlord's consent, they become a trespasser. However, if the tenant continues to pay rent and the landlord accepts it, a periodic tenancy may arise by implication (holding over). The landlord must be careful not to accept rent if they want the tenant to leave.
Some tenants have statutory security of tenure that prevents the lease from ending automatically on expiry. Under the Landlord and Tenant Act 1954, business tenants have the right to a new lease unless the landlord can establish a ground for opposition. Residential tenants may have protection under the Housing Act 1988 or other legislation. These statutory protections override the common law position.
If the tenant holds over after the fixed term expires and the landlord accepts rent, a periodic tenancy may be created. The period is usually the same as the rent payment period. This means the tenant gains a new, ongoing tenancy that can only be terminated by proper notice. Landlords must be careful not to accept rent from holding-over tenants if they want possession.
A notice to quit is used to terminate a periodic tenancy. It cannot be used to terminate a fixed-term lease before the end of the term. The notice must specify a date that is the end of a period of the tenancy (e.g., if rent is paid quarterly, the notice must expire at the end of a quarter). The required length of notice depends on the type of tenancy.
To be valid, a notice to quit must: (1) be in writing (for tenancies of less than a year, oral notice may be sufficient at common law but written notice is required by statute in most cases), (2) specify the date of termination, (3) expire at the end of a period of the tenancy, (4) give at least the minimum required notice period. The notice must also be served properly on the tenant.
The required notice period depends on the type of tenancy. For a yearly tenancy, at least six months' notice is required. For a quarterly tenancy, at least one quarter's notice. For a monthly tenancy, at least one month's notice. The notice must always expire at the end of a period of the tenancy. Statutory provisions may modify these common law rules.
A lease may be terminated by surrender before the end of the term. Express surrender occurs when both landlord and tenant agree to end the lease early. This agreement must be by deed, as it involves the disposition of a legal estate. The surrender releases both parties from their future obligations under the lease. Past breaches may still be actionable.
Surrender can also be implied from the conduct of the parties. This requires an unequivocal act by the landlord and tenant that is inconsistent with the continuation of the lease. The landlord must accept the surrender by some act that recognises the tenancy is at an end. Common examples include: the tenant giving up possession and the landlord accepting the keys, or the landlord re-letting the property to a new tenant.
Implied surrender may be found where: the tenant vacates and returns the keys, the landlord enters and begins renovation works, the landlord accepts rent from a new tenant, the tenant negotiates a new lease with the landlord on different terms, or the landlord and tenant agree to a variation that is inconsistent with the existing lease continuing.
For implied surrender to arise, the conduct must be unequivocally inconsistent with the continuation of the lease. Acceptance of keys alone may not be sufficient if the landlord merely holds them for safekeeping. Each case turns on its own facts. Courts require clear evidence that both parties intended the lease to end.
Merger occurs when the leasehold estate and the reversionary estate come into the same hands. When the landlord acquires the tenant's leasehold interest (or vice versa), the lease is extinguished because a person cannot have a lease from themselves. The doctrine applies automatically unless the parties expressly or impliedly intend to keep the estates separate.
Merger does not occur if the parties intend to keep the estates separate. This intention can be express or implied from the circumstances. For example, if the landlord buys the leasehold interest for the purpose of granting a new lease to a third party, the merger does not take place because the intention to keep the estates separate is clear from the purpose of the acquisition.
A lease may be terminated by frustration if an unforeseen event occurs that renders performance impossible or radically different from what was contemplated. However, frustration of leases is rare. Unlike ordinary contracts, leases create property rights that are more resistant to frustration. The courts are reluctant to apply frustration to leases because of the property rights involved.
Frustration may apply where the property is destroyed or rendered permanently unusable (e.g., by an act of God or compulsory purchase). However, the case law suggests that frustration is only available in extreme circumstances. In most cases, the risk of destruction or damage falls on the tenant, who must continue to pay rent even if the property is damaged. This is because leases create a property estate that continues to exist.
Do not assume frustration applies to leases in the same way as ordinary contracts. The leading cases show extreme reluctance to frustrate leases. Even total destruction of the property may not frustrate the lease. This is an important distinction from general contract law. The tenant may need to rely on an express or implied frustration clause in the lease, or on insurance provisions.
| Method | When It Applies | Requirements | Key Points |
|---|---|---|---|
| Effluxion of time | Fixed-term leases | None -- automatic on expiry | Tenant must vacate; holding over may create periodic tenancy |
| Notice to quit | Periodic tenancies only | Written notice; minimum period; end of a period | Cannot be used for fixed-term leases |
| Express surrender | Any lease | Agreement by deed between landlord and tenant | Both parties released from future obligations |
| Implied surrender | Any lease | Unequivocal conduct inconsistent with continuation | Landlord must accept surrender by conduct |
| Merger | When lease and reversion unite | Same person holds both estates | Does not apply if intention to keep estates separate |
| Frustration | Rare -- extreme circumstances | Unforeseen event rendering lease impossible | Courts very reluctant to apply to leases |
| Forfeiture | On breach of covenant | Right reserved in lease; s.146 LPA 1925 procedure | Subject to relief against forfeiture |
Forfeiture is the landlord's right to bring the lease to an end and re-enter the property when the tenant breaches a covenant. It is the most powerful remedy available to a landlord. However, forfeiture is not automatic -- the landlord must have reserved the right in the lease, and must follow the correct procedure. The right is purely contractual and arises only if the lease expressly provides for it.
The right of forfeiture must be expressly reserved in the lease. If the lease does not contain a forfeiture clause, the landlord cannot forfeit, regardless of how serious the tenant's breach is. Forfeiture clauses are standard in commercial leases. The clause typically provides that the landlord may re-enter if the tenant breaches any covenant.
At common law, a landlord could exercise the right of forfeiture by peaceable re-entry. This means physically entering the property and taking possession without a court order. The re-entry must be "peaceable" -- without violence or breach of the peace. If the landlord uses force, the re-entry is unlawful and the forfeiture is ineffective. The landlord must also ensure the tenant is not in actual occupation at the time.
Peaceable re-entry is risky for landlords. If the re-entry is not peaceable (e.g., the landlord changes the locks while the tenant is present and objects), it is unlawful. The landlord may be liable for trespass and the tenant may seek reinstatement. In practice, landlords generally prefer court proceedings for forfeiture to avoid these risks.
Section 146 of the Law of Property Act 1925 sets out the procedure for forfeiture by court proceedings. The section applies to breaches of covenant other than non-payment of rent. For non-payment of rent, the landlord may use the common law right of re-entry (peaceable re-entry or proceedings for possession) without first serving a s.146 notice.
A right of re-entry or forfeiture shall not be enforceable by action or otherwise, unless the landlord has served on the tenant a notice specifying the particular breach complained of and, if the breach is capable of remedy, requiring the tenant to remedy it and making reasonable provision for compensation.
The s.146 notice must: (1) specify the particular breach complained of, (2) if the breach is capable of remedy, require the tenant to remedy it within a reasonable time, and (3) if the breach is not remediable, make reasonable provision for compensation. The notice must be served on the tenant and on any subtenant who has a sublease of a term of more than six months.
If the breach is capable of being remedied (e.g., failure to repair, failure to insure), the notice must give the tenant a reasonable time to remedy it. If the tenant remedies the breach within the specified time, the right of forfeiture cannot be exercised for that breach. If the breach is not capable of remedy (e.g., unauthorised assignment has already taken place), the notice must make reasonable provision for compensation instead.
For non-payment of rent, the landlord does not need to serve a s.146 notice before forfeiting. The landlord can proceed directly to forfeiture (by peaceable re-entry or court proceedings). However, the tenant may still apply for relief against forfeiture. The landlord must also ensure that a formal rent demand (where required by the lease) has been made.
The House of Lords considered whether a landlord could forfeit a lease for breach of a covenant to quiet enjoyment, where the breach was caused by disrepair of common parts. The court held that the breach was remediable because the landlord could carry out the repairs. This case illustrates the importance of distinguishing between remediable and non-remediable breaches and the court's approach to determining this question.
Section 210 of the County Courts Act 1984 (originally s.210 of the County Court (Emergency Powers) Act 1945) gives the court a discretionary power to grant relief against forfeiture. If the lease has been forfeited, the court may order the landlord to restore the lease to the tenant on such terms as it thinks fit, including payment of rent arrears and costs. The jurisdiction is equitable and discretionary.
In any action for the recovery of premises, the court may, if it thinks fit, stay or set aside judgement and grant relief against forfeiture on such terms as the court thinks fit, including the payment of rent arrears, costs, and any other sum due under the lease.
For relief to be granted, the tenant must: (1) apply promptly (delay may defeat the application), (2) pay all rent arrears and other sums due under the lease, (3) pay the landlord's costs of the forfeiture proceedings, and (4) remedy the breach (if remediable). The court has a wide discretion and will consider all the circumstances, including the conduct of the parties.
The tenant must apply for relief promptly. What is "prompt" depends on the circumstances, but unreasonable delay may cause the court to refuse relief. The tenant should apply as soon as possible after the forfeiture. If the landlord has acted on the forfeiture (e.g., by re-letting to a new tenant), relief may no longer be available.
The House of Lords held that relief against forfeiture is not available for non-payment of rent if the tenant does not pay all arrears and costs into court. The court cannot grant relief on terms that are more favourable than full payment of what is owed. This case establishes that the tenant must pay everything due before relief will be granted.
The Court of Appeal held that relief against forfeiture could be granted even where the forfeiture was for a non-remediable breach (unauthorised assignment). The court has a broad equitable discretion to grant relief regardless of the type of breach, subject to the tenant satisfying the conditions (prompt application, payment of arrears and costs). This is an important case showing the breadth of the court's discretion.
Relief against forfeiture is not a right -- it is a discretionary remedy. The court will consider all the circumstances, including the tenant's conduct, the nature of the breach, whether the breach has been remedied, and whether the landlord has re-let the property. In appropriate cases, the court may refuse relief.
The landlord can claim damages for any loss suffered as a result of the tenant's breach of covenant. For example, if the tenant fails to repair, the landlord can claim the cost of carrying out the repairs. If the tenant fails to pay rent, the landlord can claim the arrears plus interest. Damages are compensatory and aim to put the landlord in the position they would have been in had the breach not occurred.
The court may grant an injunction to prevent a continuing or anticipated breach of covenant. For example, an injunction may be granted to prevent the tenant from carrying out unauthorised alterations, or from using the property in breach of a user covenant. Injunctions are discretionary and the court will consider whether damages would be an adequate remedy.
The court may order specific performance of a positive covenant. For example, the court may order the tenant to carry out repair works that they are obliged to do under the lease. Specific performance is discretionary and will not be granted if damages are an adequate remedy or if the order would be difficult to supervise.
A tenant who has a claim against the landlord for breach of covenant (e.g., the landlord's failure to repair) may be able to set off the damages against the rent. This is a common defence to a claim for rent arrears. However, set-off is only available if the tenant's claim is closely connected with the landlord's claim for rent. The claims must be sufficiently closely connected.
As discussed above, forfeiture is the ultimate remedy for serious breach. It terminates the lease entirely. Because forfeiture is such a severe remedy, the court will require strict compliance with the statutory procedure and will readily grant relief where appropriate. Forfeiture should be seen as a remedy of last resort.
Distress for rent was a common law remedy that allowed a landlord to seize the tenant's goods and sell them to recover unpaid rent. This remedy was abolished by the Tribunals, Courts and Enforcement Act 2013 (TCEA 2013) with effect from 6 April 2014. Landlords can no longer use distress for rent. This is an important change that you may be tested on.
The common law remedy of distress for rent is abolished. Landlords of commercial premises may instead use Commercial Rent Arrears Recovery (CRAR) to recover unpaid rent from commercial tenants.
CRAR replaced distress for rent for commercial tenancies. Under CRAR, an enforcement agent appointed by the landlord can take control of the tenant's goods and sell them to recover unpaid rent. CRAR only applies to commercial premises (not residential). There are restrictions on what goods can be seized, the amount that can be recovered, and the procedure that must be followed.
CRAR can only be used where: (1) the premises are commercial, (2) there is a written lease, (3) the rent arrears are purely for rent (not service charges or other sums), (4) the arrears exceed the minimum threshold (currently 7 days' rent). The enforcement agent must follow a prescribed procedure, including giving the tenant notice. Certain goods are exempt from seizure (e.g., goods belonging to third parties, tools of the trade up to a certain value).
Forfeiture remains available for non-payment of rent. Unlike other breaches, no s.146 notice is required for rent arrears. The landlord may proceed to forfeiture by peaceable re-entry or court proceedings. However, the tenant may apply for relief against forfeiture on payment of the arrears and costs. The court has a discretion to grant relief.