Learning Outcomes
After reading this article, you will be able to identify the different legal ways in which a lease may be terminated, understand the requirements and consequences of each method (including forfeiture, surrender, disclaimer, notice to quit, and break clauses), and apply termination rules and available remedies to scenarios in leasehold practice, as required for the SQE2 exam.
SQE2 Syllabus
For SQE2, you are required to understand the main ways a lease may be terminated and how these feature in practical legal and advisory work. In your revision, focus particularly on:
- the legal routes for terminating a lease (forfeiture, surrender, disclaimer, expiry, notice to quit, break clause)
- landlord and tenant rights and remedies on termination
- the statutory and procedural requirements for each type of termination
- recognizing the practical and legal consequences of termination for landlord, tenant, and third parties
- identifying and advising on appropriate remedies in termination scenarios
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 can occur at the end of the contractual term, or prematurely through several legal and practical mechanisms. For SQE2, it is essential to distinguish the distinct legal bases for lease termination, understand the precise requirements of each route, and appreciate the implications for both landlords and tenants.
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
The simplest form of termination is by effluxion of time, when the fixed term of the lease naturally comes to an end. No special action is required by either party.
Key Term: effluxion of time
The ending of a lease at the expiry of the fixed contractual term.
Termination by Notice to Quit
Periodic leases (weekly, monthly, yearly) do not have an agreed end date and continue until a party serves a notice to quit. Generally, the notice period must match the period of the tenancy (e.g., one month for a monthly tenancy), and statutory requirements may require a minimum notice—for example, four weeks for residential tenancies where the property is occupied.
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 gives one or both parties a contractual right to terminate the lease early on specified dates, subject to conditions such as notice being served. Exercising a break clause depends strictly on compliance with its terms.
Key Term: break clause
A contractual provision allowing either party, usually on giving prior notice, to terminate the lease before the contractual expiry.
Termination by Surrender
Surrender occurs where the tenant yields up possession and both landlord and tenant agree, either expressly or impliedly, that the lease will end. Surrender can be:
- Express: Must be effected by deed if the lease was created by deed (recommended for clarity), showing the mutual agreement.
- Implied (Surrender by Operation of Law): Arises from unequivocal conduct by both parties inconsistent with the lease continuing. For example, the landlord accepting the keys, or granting a new lease to a third party while the tenant vacates.
Key Term: surrender
Mutual agreement between landlord and tenant to terminate the lease before expiry; requires a deed if the lease was by deed.
Termination by Forfeiture
Forfeiture is a landlord’s right to bring the lease to an end due to the tenant’s breach of certain covenants (e.g., non-payment of rent, prohibited assignment, or disrepair). The right must be expressly reserved in the lease. The landlord exercises forfeiture by one of two methods:
- Peaceable re-entry: Physically re-entering the property without force (commonly only in commercial settings and when the premises are unoccupied, to avoid criminal liability).
- Court proceedings: Seeking a possession order from the court, which is required for residential properties or if peaceable re-entry risks confrontation.
Prior to forfeiture for breach other than rent, the landlord must usually serve a statutory notice (section 146 Law of Property Act 1925), specifying the breach, requiring remedy (if remediable), and compensation. The tenant may seek relief from forfeiture; if granted, the lease continues as before.
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.Key Term: relief from forfeiture
The court’s power to reinstate a lease terminated by forfeiture if the tenant remedies the breach or pays arrears (usually within a specified time).
Termination by Disclaimer
Disclaimer arises when the tenant becomes insolvent (bankruptcy, liquidation). A trustee in bankruptcy or liquidator may disclaim the lease, releasing the insolvent tenant from future obligations, but not ending subleases automatically. Subtenants may apply to take over the disclaimed lease.
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.
Termination by Repudiatory Breach
If one party fundamentally breaches the terms of the lease, the other may accept the breach as terminating the lease. This is rare but can occur if the breach goes to the root of the contract, and the innocent party accepts it (e.g., landlord’s unauthorized demolition of the premises).
Key Term: repudiatory breach
A breach so fundamental it entitles the innocent party to treat the contract/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 1.2
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 1.3
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.
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 can occur in various ways: expiry of term, notice to quit, break clause, surrender (mutual agreement), forfeiture (on breach), disclaimer (insolvency), and repudiatory breach. Each has distinct requirements and consequences, especially regarding remedies and third-party interests.
Key Point Checklist
This article has covered the following key knowledge points:
- The different grounds on which a lease can be terminated, including expiry, notice to quit, break clause, surrender, forfeiture, disclaimer, and repudiatory breach.
- Statutory formalities: notice periods, deed requirement for surrender, section 146 notice for most forfeitures, and insolvency law for disclaimer.
- The landlord's waiver risk for forfeiture and the tenant’s right to seek relief from forfeiture.
- The importance of strict compliance with break clause requirements and the lease's terms generally.
- The remedies associated with each termination route, including the potential for relief, damages, and effect on subleases and third parties.
Key Terms and Concepts
- termination of a lease
- effluxion of time
- notice to quit
- break clause
- surrender
- forfeiture
- relief from forfeiture
- disclaimer
- repudiatory breach