Learning Outcomes
This article details the various legal methods by which a leasehold estate can be brought to an end, including:
- Termination by effluxion of time
- Notice to quit and statutory notice regimes for periodic and protected tenancies
- Termination by agreement: surrender (express and by operation of law) and merger
- Break clauses and strict compliance with contractual pre-conditions and consequences of non-compliance
- Distinctions between fixed-term and periodic tenancies and statutory overlays (Housing Act 1988; Landlord and Tenant Act 1954)
- Forfeiture for breach: procedures for non-payment of rent and other breaches, section 146 LPA 1925, remediability, and means of re-entry
- Waiver of the right to forfeit and its practical consequences
- Relief from forfeiture for tenants, subtenants, and mortgagees
- Limited scope of frustration in lease contexts
- Insolvency disclaimer, its effects on tenant liabilities and subtenancies, and the potential for vesting orders
- Effects of termination on subleases and mortgagees, and protection of derivative interests
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, with a focus on the following syllabus points:
- 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.
- Waiver of the right to forfeit and its practical consequences.
- Peaceable re-entry versus court proceedings and their limits for residential premises.
- The effect of termination on subleases and how relief can protect subtenants.
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.
Lease termination does not sit in a vacuum. Statutory regimes can displace or supplement common law rules—most significantly the security of tenure frameworks for assured residential tenancies (Housing Act 1988) and business tenancies (Landlord and Tenant Act 1954). A fixed-term lease may expire by effluxion of time yet continue as a statutory tenancy; a periodic tenancy may not be terminable at common law by simple notice to quit where a statutory procedure is mandated. Throughout, it is important to identify the tenancy type, any contractual clauses (especially forfeiture and break provisions), and any statutory protections before advising on termination.
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.
Where statutory protection applies:
- Business tenancies within Part II LTA 1954 generally do not end by mere effluxion; renewal and termination are governed by statutory notices (e.g., section 25 notice by landlord, section 26 request by tenant), unless the parties have contracted out.
- For assured shorthold tenancies, the fixed term’s end may be followed by a statutory periodic tenancy unless validly ended using the statutory routes, typically section 21 (no-fault) or section 8 (fault-based) notices. A common law notice to quit is not generally used.
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.
Important overlays:
- Residential occupiers protected by the Protection from Eviction Act 1977 generally require at least four weeks’ notice for weekly tenancies, and in practice at least one month for monthly tenancies, with prescribed form and information in some cases.
- Assured and assured shorthold tenancies must be ended using Housing Act procedures (section 21 or section 8) rather than a common law notice to quit.
- For business tenancies within the LTA 1954, simple notices to quit are ineffective unless the tenancy is outside the Act’s protection; otherwise, section 25/26 processes apply.
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.
Break Clauses
Break clauses allow a landlord, a tenant, or both to terminate a lease early by serving a break notice in accordance with the clause. Many commercial leases incorporate tenant-only or mutual breaks.
Key Term: Break Clause
A contractual provision giving one or both parties a right to terminate the lease early by serving a break notice in accordance with stipulated conditions.
Key points:
- Conditions precedent must be strictly satisfied. Common pre-conditions include payment of rent and other sums up to the break date, delivery up of vacant possession, and compliance with notice formalities (method, address, and timing).
- Courts emphasise substance over form for dating errors in notices if the intention is clear and the lease permits (though strict compliance with the contractual service regime is still expected).
- “Vacant possession” conditions require the tenant to yield up the premises empty of people, chattels and interests which substantially prevent or interfere with the landlord’s right to use and possess the premises. Leaving substantial fixtures or undertaking works late may jeopardise the break if it prevents vacant possession.
- If a break is exercised validly, the term ends on the break date and future liabilities cease, but accrued liabilities (e.g., arrears) remain. Some leases require payment of a break premium; if stipulated, it must be paid to operate the break.
Worked Example 1.3
A 10-year commercial lease contains a tenant’s break on the fifth anniversary, exercisable on six months’ written notice “provided all rents have been paid up to the break date and the tenant yields up with vacant possession.” The tenant serves notice correctly but withholds a small amount of insurance rent disputed on quantum. On the break date, the unit is clear of people and goods, but the tenant leaves substantial demountable partitions that hinder the landlord’s intended use. Is the break effective?
Answer:
Likely not. The rent condition is generally interpreted strictly—any unpaid rent or other sums due on the break date can defeat the break, even if genuinely disputed. In addition, leaving substantial items that materially interfere with the landlord’s use may breach the vacant possession condition, also defeating the break. The safer course would have been to pay all sums demanded (reserving rights) and ensure the premises were genuinely yielded up free of substantial chattels.
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.
Break clauses are construed against the party seeking to rely on them if their conditions are not met. Strict compliance with service provisions and conditions precedent is essential.
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 delivering up possession and the landlord unequivocally accepting it, typically by re-letting to a third party or taking back and using the premises for their own purposes.
Recognition points:
- Mere negotiation or accepting keys “without prejudice” will not necessarily amount to surrender; there must be unequivocal conduct by both sides.
- Unless released, liabilities accrued before surrender (e.g., rent arrears, dilapidations) remain enforceable. Parties often document any settlement alongside a deed of surrender.
Effect on subtenancies:
- A valid sublease ordinarily survives an express surrender of the headlease unless the parties and the nature of the surrender indicate otherwise. The subtenant typically becomes the immediate tenant of the freeholder on the same terms as the sublease. This protects vested third-party rights carved out of the headlease.
Worked Example 1.4
A headtenant hands back keys, vacates, and asks the landlord to accept a surrender. The landlord immediately markets and re-lets the premises to a third party for a term beyond the original lease. Is there a surrender?
Answer:
Yes, by operation of law. The landlord’s unequivocal act of re-letting to a third party is inconsistent with the continuation of the headtenant’s lease and amounts to acceptance of a surrender. The headtenant remains liable for sums accrued up to the surrender unless released.
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. Intention matters—parties may choose to prevent merger (for instance, to preserve a valuable underlease), and equity respects that intention. As with surrender, merger does not operate to extinguish vested rights of third parties (such as subleases) unless the law or the parties’ arrangements otherwise provide.
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 accepted frustration could apply to leases in principle but held it did not apply on the facts (temporary loss of access). In practice, severer events are usually managed by express clauses rather than by invoking frustration.
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). There is no general implied right to forfeit for breach except in limited historic contexts; modern leases usually include an express clause.
- The landlord must not have waived the right to forfeit (e.g., by unequivocally affirming the lease with knowledge of the breach).
Breach-specific steps:
- Non-payment of rent: A section 146 notice is not required. Many modern leases dispense with any formal common law demand requirement; otherwise, a demand may historically have been required unless a significant arrears threshold was met. The landlord can proceed either by issuing court proceedings for possession or, for commercial premises only, by peaceable re-entry if safe and lawful.
- Other breaches (e.g., user, alterations, alienation, repair): The landlord must first serve a notice under section 146 of the Law of Property Act 1925. The notice must:
- specify the breach,
- require it to be remedied if it is capable of remedy within a reasonable time,
- require compensation if desired. Only if the tenant fails to comply can the landlord proceed to forfeit.
Remediability:
- Breaches commonly treated as capable of remedy include disrepair and many alterations breaches. Immoral or illegal use is often regarded as irremediable. Breaches of alienation covenants (assigning or subletting without consent) are typically treated as once-and-for-all and often irremediable, though courts will consider the facts.
Means of re-entry:
- Peaceable re-entry is generally confined to commercial property and must be exercised without the use or threat of violence. Unlawful eviction of residential occupiers is a criminal offence under the Protection from Eviction Act 1977. Even in commercial cases, the Criminal Law Act 1977 severely restricts forcible re-entry, and court proceedings are usually safer.
Key Term: Peaceable Re-entry
A non-violent physical re-entry to take possession following a right of re-entry, generally used only for commercial premises. Risky and subject to statutory limits.
Waiver:
- A landlord waives the right to forfeit for a known breach if, with knowledge of the breach, it unequivocally recognises the lease as continuing—most commonly by demanding or accepting rent that accrues after the breach. Waiver for a continuing breach (e.g., ongoing disrepair) waives only the right to forfeit for the existing breach, not for subsequent continuations. Waiver for a once-and-for-all breach (e.g., an unlawful assignment) permanently waives the right to forfeit for that breach.
Key Term: Waiver (of forfeiture)
Conduct by the landlord, with knowledge of the breach, that affirms the lease (e.g., acceptance of post-breach rent), thereby losing the specific right to forfeit for that breach.
Relief from forfeiture:
- The court may grant relief to the tenant (and, in some cases, subtenants and mortgagees) on terms. For non-payment of rent, relief is commonly granted if arrears and costs are paid promptly. For other breaches, relief is discretionary; the court considers the gravity of the breach, the speed and adequacy of remedial action, and the tenant’s conduct. Relief can be granted even after peaceable re-entry in appropriate cases.
Key Term: Relief from Forfeiture
The court’s equitable power to restore a lease terminated (or liable to be terminated) by forfeiture, usually on terms such as remedying the breach and paying compensation.
Subtenants and mortgagees:
- Subtenants may apply for relief where a headlease is forfeited. The court can grant relief by ordering a new lease or continuing the sublease, balancing the interests of the superior landlord and subtenant. Mortgagees of the leasehold may also seek relief to protect their security.
Worked Example 1.5
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.
Worked Example 1.6
A tenant is in persistent minor arrears. The landlord, knowing of the arrears, continues to issue rent demands and accepts monthly payments covering part of the period after the arrears accrued. Later, the landlord seeks to forfeit for those arrears. Has the landlord waived the right?
Answer:
Likely yes, for the arrears that were the subject of waiver. By accepting rent that accrued after knowledge of the breach, the landlord has affirmed the tenancy and waived the right to forfeit for that breach. The landlord may still forfeit for a later, distinct breach if it has not been waived, and remains able to sue for the arrears as a debt.
Worked Example 1.7
A tenant makes structural alterations without consent but swiftly reinstates following a section 146 notice and offers compensation. The landlord has not yet re-entered. Can the tenant obtain relief?
Answer:
The court is likely to grant relief from forfeiture on terms. Unauthorised alterations are generally remediable breaches. Where the breach is swiftly remedied and compensation paid, equitable relief will commonly be granted to avoid the penalty of losing the lease.
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. Take care with peaceable re-entry: it is generally confined to commercial premises and must be exercised without violence; residential re-entry without a court order risks criminal liability. Consider the fate of subleases: they are destroyed by forfeiture unless the court grants relief.
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. Courts have been prepared in some instances to treat a landlord’s serious breach as going to the root of the bargain and to accept that a tenant may treat the lease as at an end, but the safer and more orthodox route remains forfeiture (for landlord) or conventional remedies (for tenant) such as damages and specific performance where available.
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 Term: Disclaimer
A statutory power in insolvency allowing a liquidator or trustee in bankruptcy to disclaim an onerous lease, terminating the insolvent tenant’s rights and liabilities from the date of disclaimer.
Key effects and considerations:
- Disclaimer determines the insolvent tenant’s interest but does not necessarily determine third-party rights. Subtenants and mortgagees can seek vesting orders to preserve their positions, often on terms that they assume headlease obligations.
- Landlords’ claims for losses caused by disclaimer (e.g., future rent) are typically provable as unsecured debts in the insolvency.
- Disclaimer does not constitute forfeiture; therefore, relief from forfeiture does not apply. However, the court’s vesting jurisdiction can, in practice, protect subtenants.
Worked Example 1.8
A company holds a long, above-market rent headlease and has underlet floors on market terms. The company goes into liquidation and the liquidator disclaims the headlease. What becomes of the subtenants?
Answer:
The disclaimer ends the company’s rights and liabilities under the headlease but does not automatically extinguish the subleases. Subtenants may apply for vesting orders so that their interests are preserved (usually becoming tenants directly of the head landlord on appropriate terms). If they do not, there is a risk their interests may be adversely affected depending on the circumstances.
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, subject to statutory overlays (e.g., LTA 1954, Housing Act 1988).
- Notice to quit is used to terminate periodic tenancies and must comply with common law and statutory rules; many residential and protected business tenancies require statutory notices rather than common law notices.
- Break clauses allow early termination if specific conditions in the lease are met; strict compliance with notice formalities and any pre-conditions (e.g., vacant possession, payment of sums) is essential.
- Surrender is termination by mutual agreement between landlord and tenant, effected by deed or by unequivocal conduct inconsistent with the tenancy continuing; accrued obligations can remain unless released.
- Merger occurs when the tenant acquires the landlord's reversion and intends the interests to merge; intention is key. Subleases generally survive surrender and merger.
- 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), the risks of waiver, the limits on peaceable re-entry, and the possibility of relief.
- Frustration (very rare for leases) applies only where performance is rendered impossible or radically different.
- Disclaimer allows a trustee in bankruptcy or liquidator to terminate an onerous lease; subtenants and mortgagees may seek vesting orders to protect their positions.
- Repudiatory breach may potentially apply in lease contexts but is less established than forfeiture and requires caution.
Key Terms and Concepts
- Effluxion of Time
- Notice to Quit
- Break Clause
- Surrender
- Merger
- Frustration
- Forfeiture
- Waiver (of forfeiture)
- Peaceable Re-entry
- Relief from Forfeiture
- Disclaimer