Learning Outcomes
This article details the various legal methods by which a leasehold estate can be brought to an end. It covers termination by effluxion of time, notice, agreement between the parties (surrender and merger), and other methods such as forfeiture, frustration, and disclaimer. For the SQE1 assessment, you will need to identify the different ways a lease can terminate and understand the legal principles and procedures applicable to each method, particularly forfeiture. This understanding will enable you to apply the correct legal rules to SQE1-style single best answer questions concerning lease termination scenarios.
SQE1 Syllabus
For SQE1, you are required to understand the different ways a lease can be terminated. This involves knowing the circumstances under which each method applies and the legal consequences for both landlord and tenant. Your understanding of these principles will be tested in practical scenarios.
As you work through this article, focus your revision on:
- The distinction between termination methods for fixed-term and periodic tenancies.
- The requirements for valid notices to quit and the exercise of break clauses.
- The concept and process of surrender, including express and implied surrender.
- The mechanism and effect of merger.
- The grounds and procedure for forfeiture, including the requirements for s 146 notices and the availability of relief.
- Less common termination methods like frustration and disclaimer.
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.
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Which of the following methods automatically terminates a fixed-term lease without any action required by either party?
- Forfeiture
- Surrender
- Notice to quit
- Effluxion of time
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A landlord wishes to forfeit a lease for breach of a repairing covenant. Which preliminary step is generally required under the Law of Property Act 1925?
- Obtaining a court order for possession.
- Serving a notice to quit on the tenant.
- Serving a section 146 notice specifying the breach and requiring remedy.
- Proving the tenant's insolvency.
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What happens to a sublease if the headlease is terminated by forfeiture?
- The sublease automatically continues with the head landlord.
- The sublease is automatically extinguished, subject to relief.
- The subtenant becomes the direct tenant of the freeholder.
- The sublease converts into a periodic tenancy.
Introduction
A leasehold estate, unlike a freehold, is granted for a definite period. The termination of this period, or other events, can bring the lease to an end. Understanding the various methods by which a lease can be determined (terminated) is fundamental for advising both landlords and tenants on their rights and obligations. These methods range from the natural expiry of the term to termination by agreement or due to a breach of covenant. This article outlines the principal ways a lease can end under English and Welsh law.
Natural Expiry and Notice
Leases can terminate naturally at the end of their agreed duration or through the service of a valid notice, depending on the type of tenancy.
Effluxion of Time
This is the most common method for the termination of a fixed-term lease. The lease simply ends when the agreed period expires.
Key Term: Effluxion of Time The natural expiry of a fixed-term lease at the end of the specified period.
Once the term expires, the tenant no longer has the right to possess the property and must vacate, unless statutory provisions (like security of tenure under the Landlord and Tenant Act 1954 for business tenancies, or Housing Act 1988 provisions for residential tenancies) grant them rights to remain or seek a new lease. No notice is generally required from either party for termination by effluxion of time unless the lease specifically provides otherwise.
Worked Example 1.1
Asha grants Ben a lease of an office for a fixed term of 5 years, commencing on 1 January 2020. When does the lease terminate?
Answer: The lease terminates automatically by effluxion of time on 31 December 2024. Neither party needs to serve notice unless the lease contains specific provisions requiring it, or statutory security of tenure applies.
Notice to Quit
Periodic tenancies (e.g., weekly, monthly, quarterly, yearly) continue indefinitely from one period to the next until terminated by a valid notice to quit served by either the landlord or the tenant.
Key Term: Notice to Quit A formal notification given by either a landlord or tenant to terminate a periodic tenancy.
The notice must comply with common law requirements (e.g., be for the correct notice period, expire at the end of a period) and any statutory requirements (e.g., minimum notice periods under the Protection from Eviction Act 1977 for residential tenancies). The length of notice required usually corresponds to the period of the tenancy (e.g., one month's notice for a monthly tenancy), subject to a maximum of six months' notice for a yearly tenancy at common law.
Worked Example 1.2
Chen rents a flat from David on a monthly periodic tenancy, starting on the 1st of each month. David wishes to terminate the tenancy. What notice must David give?
Answer: David must give Chen at least one full month's notice, expiring on the last day of a rental period (e.g., notice given on 15th May must expire no earlier than 30th June). If it's a residential tenancy, statutory rules (e.g., minimum notice periods, prescribed form requirements) under legislation like the Protection from Eviction Act 1977 and potentially the Housing Act 1988 must also be satisfied.
Exam Warning
Always check the specific requirements for notices to quit, including length, expiry date alignment with the tenancy period, and any prescribed information or forms required by statute, especially for residential tenancies. Incorrect notice is invalid.
Termination by Agreement
Landlords and tenants can mutually agree to end a lease prematurely through surrender or merger.
Surrender
Surrender occurs when a tenant yields up their leasehold estate to their immediate landlord, who accepts the surrender. The lease is absorbed by the landlord's reversionary interest and is extinguished.
Key Term: Surrender The yielding up of the leasehold estate by the tenant to the immediate landlord, extinguishing the lease by mutual agreement.
Surrender requires the consent of both parties. It can be effected:
- Expressly: Requires a deed (s 52 LPA 1925) to be legally effective.
- By operation of law (implied surrender): Arises from the conduct of the parties that is unequivocally inconsistent with the continuation of the tenancy, such as the tenant vacating and the landlord re-letting the property to a third party or taking possession themselves.
Crucially, surrender of a headlease does not automatically terminate a valid sublease. The subtenant becomes the direct tenant of the head landlord on the terms of the sublease.
Merger
Merger occurs when the tenant acquires the immediate reversionary estate (the landlord's interest). The leasehold estate is absorbed into the larger reversionary estate and is extinguished, provided there is an intention to merge.
Key Term: Merger The union of the leasehold estate and the immediate reversionary estate when they come into the same ownership and possession, extinguishing the lease.
For example, if a tenant holding a 20-year lease purchases the freehold reversion from their landlord, the lease merges with the freehold and ceases to exist, unless a contrary intention is expressed.
Termination by Operation of Law or Breach
Leases can also terminate due to external events or breaches of covenant.
Frustration
Although rare for leases, the doctrine of frustration can apply if an unforeseen event occurs after the lease is granted, making performance impossible or radically different from what was contemplated, through no fault of either party.
Key Term: Frustration A contract law doctrine where an unforeseen event makes performance impossible or radically different, automatically discharging the contract (rarely applied to leases).
The event must destroy the fundamental basis of the contract. Physical destruction of the property (e.g., by fire) usually does not frustrate a lease, as the estate in the land continues to exist, and leases often contain express provisions dealing with such events (e.g., rent suspension, repair obligations). The House of Lords in National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675 accepted frustration could apply to leases in principle but held it did not apply on the facts (temporary loss of access).
Forfeiture
Forfeiture allows a landlord to terminate a lease prematurely due to a tenant's breach of covenant.
Key Term: Forfeiture The right of a landlord to terminate a lease and retake possession of the property following a breach of covenant by the tenant. Also known as the right of re-entry.
Key requirements for forfeiture:
- The lease must contain an express forfeiture clause (right of re-entry).
- The landlord must not have waived the right to forfeit (e.g., by accepting rent after becoming aware of the breach).
- For non-payment of rent: The landlord must usually make a formal demand for the rent unless the lease dispenses with this or rent is sufficiently in arrears (e.g., 6 months under Common Law Procedure Act 1852). The landlord can then proceed by peaceable re-entry (for commercial premises only) or court proceedings.
- For breaches of other covenants: The landlord must first serve a notice under section 146 of the Law of Property Act 1925. This notice must specify the breach, require it to be remedied if capable of remedy within a reasonable time, and require compensation if desired. Only if the tenant fails to comply can the landlord proceed to forfeit.
- Relief: Tenants (and subtenants/mortgagees) can apply to the court for relief from forfeiture, which, if granted, restores the lease as if forfeiture had not occurred. Relief is commonly granted for non-payment of rent if arrears are paid. For other breaches, relief is discretionary based on factors like the severity of the breach and the tenant's conduct.
Worked Example 1.3
Leo leases a shop to Tina for 10 years. The lease contains a covenant against subletting without consent and a forfeiture clause. Tina sublets the entire shop to Umar without obtaining Leo's consent. Can Leo forfeit the lease?
Answer: Yes, potentially. Tina has breached the covenant against subletting. As this is not a breach for non-payment of rent, Leo must first serve a section 146 notice on Tina. The notice must specify the breach (unlawful subletting). Breach of a covenant against assignment or subletting is generally considered incapable of remedy. Leo must wait a reasonable period (often 14 days) after serving the notice before proceeding with forfeiture, either by peaceable re-entry (if possible and lawful) or court proceedings. Tina (or Umar) could apply for relief from forfeiture, which the court may grant in its discretion.
Exam Warning (Forfeiture)
Forfeiture is a complex area. Ensure you distinguish the procedure for non-payment of rent from other breaches (s 146 notice). Remember the possibility of waiver and the availability of relief for the tenant.
Repudiatory Breach
While traditionally difficult to apply to leases due to their proprietary nature, the contractual doctrine of repudiatory breach (where one party commits a breach serious enough to entitle the innocent party to terminate the contract) may potentially apply to leases, allowing termination based on a fundamental breach by either party. However, case law is limited and its application remains uncertain compared to forfeiture.
Disclaimer
This arises primarily in the context of insolvency. A trustee in bankruptcy (for an individual tenant) or a liquidator (for a company tenant) can disclaim an onerous lease, thereby terminating the tenant's rights and liabilities under it. Disclaimer does not automatically end subleases, and subtenants or landlords may apply to the court for vesting orders.
Key Point Checklist
This article has covered the following key knowledge points:
- Leases can terminate in various ways, including by natural expiry, notice, agreement, or due to breach.
- Effluxion of time terminates fixed-term leases automatically upon reaching the end date.
- Notice to quit is used to terminate periodic tenancies and must comply with common law and statutory rules.
- Break clauses allow early termination if specific conditions in the lease are met.
- Surrender is termination by mutual agreement between landlord and tenant, effected by deed or operation of law.
- Merger occurs when the tenant acquires the landlord's reversion, extinguishing the lease.
- Forfeiture is the landlord's right to terminate for the tenant's breach of covenant, subject to strict procedural requirements (including s 146 notices for non-rent breaches) and the possibility of relief for the tenant.
- Frustration (very rare for leases) applies if an unforeseen event makes performance impossible or radically different.
- Disclaimer allows a trustee in bankruptcy or liquidator to terminate an onerous lease.
- Repudiatory breach may potentially apply but is less established than forfeiture.
Key Terms and Concepts
- Effluxion of Time
- Notice to Quit
- Surrender
- Merger
- Frustration
- Forfeiture
