Whether you need to leave early or your lease is coming to an end, knowing your options can help you exit smoothly and avoid legal or financial headaches. In this guide, we’ll walk you through the different ways to end a commercial lease - and what to watch out for.
What is a commercial lease
A commercial lease is a legally binding contract between a business (tenant) and a landlord, setting out the terms under which the business rents a property. These leases typically outline key details such as rent payments, lease duration, repair responsibilities, and how the premises can be used. Unlike residential leases, commercial leases are often more complex. They involve longer commitments, and give businesses fewer legal protections.
Can you end a commercial lease early?
Yes, but it depends on the lease terms, negotiations with the landlord, and legal provisions. Some leases have built-in exit options, like break clauses, which allow tenants to terminate the agreement early under specific conditions. If no such clause exists, the tenant may need to negotiate with the landlord or explore legal routes, such as assigning the lease to a new tenant or subletting the premises.
What are the pros and cons of ‘breaking’ a lease
Breaking a lease means ending your rental agreement early - before the end of the contract. It can offer flexibility, especially if your business needs change. However, it can also come with financial and legal consequences.
Pros ✅ | Cons ❌ |
|---|---|
Reduces financial obligations if the premises are no longer viable. | May result in financial penalties or legal disputes. |
Allows relocation to a more suitable or affordable property. | Could negatively impact future leasing agreements. |
Avoids the risk of breaching lease terms by defaulting on rent. | Requires compliance with lease conditions, which may limit exit options. |
If you’re considering ending a lease early, it’s always best to seek legal advice from a commercial property solicitor to understand your options and potential liabilities.
Top four ways to end a commercial lease
Ending a commercial lease early can be tricky, but there are several options depending on your lease terms and negotiations with your landlord. Here are the most common ways to exit a lease agreement:
1. Subletting
Subletting allows a tenant to rent out all or part of their leased space to another business while still being responsible for the original lease agreement. This can be a good option for businesses that no longer need the full space but want to avoid financial penalties for breaking the lease early. However, subletting is only allowed if the lease permits it or if the landlord agrees to it in writing.
Pros ✅ | Cons ❌ |
|---|---|
Allows the tenant to reduce their financial obligations while maintaining lease compliance. | The original tenant remains responsible for rent payments and lease obligations. |
Provides an opportunity for another business to take over the space. | Finding a subtenant that meets the landlord’s criteria can be challenging. |
2. Lease assignment
A lease assignment transfers all rights and responsibilities of a lease from the current tenant to a new tenant. Unlike subletting, the original tenant is completely removed from the lease once the assignment is completed. The new tenant assumes full responsibility for the remaining lease term. This includes rent payments, property maintenance, and any lease conditions. However, lease assignments require landlord approval, and some landlords may impose conditions before allowing the transfer.
Pros ✅ | Cons ❌ |
|---|---|
Completely removes the tenant’s obligations under the lease. | The landlord may refuse or impose strict conditions. |
Allows for a clean exit from the lease. | Some leases include assignment fees or require a guarantor. |
3. Using a break clause
A break clause is a clause in a commercial lease that allows either the tenant or the landlord to terminate the lease early, as long as specific conditions are met. These conditions typically include providing notice within a set timeframe, ensuring rent payments are up to date, and complying with all other lease obligations at the time of exit.
👉 You can learn more in our guide to what is a break clause.
Pros ✅ | Cons ❌ |
|---|---|
Offers a legally defined exit strategy. | Break clauses often have strict conditions that must be met (e.g., notice periods, payment of outstanding rent, compliance with lease terms). |
Avoids the need for negotiation or legal disputes. | Failure to adhere to the conditions can invalidate the break attempt. |
4. Lease surrender
A lease surrender is a formal agreement between the tenant and landlord to end a lease early. This typically involves negotiation, and the landlord may request a financial settlement (also known as a surrender premium) to compensate for lost rental income.
Lease surrender is not an automatic right and must be agreed upon by both parties. If you choose to surrender your lease, you’ll also likely need to compensate your landlord. The amount usually reflects what they’d lose if you stayed until the end of the lease. It can sometimes be worth comparing this cost to what you’d pay by keeping the premises.
💡Editor’s insight: “If considering a lease surrender, be prepared to negotiate. Offering a lump sum payment or helping the landlord find a new tenant may increase the chances of reaching an agreement.”
Pros ✅ | Cons ❌ |
|---|---|
Provides a negotiated solution that both parties agree upon. | The landlord may demand a compensation payment. |
Allows an immediate exit from the lease. | Negotiations can be time-consuming and uncertain. |
Choosing the right exit strategy
Each of these options provides a different route for ending a commercial lease early. The best choice depends on the lease terms, financial considerations, and the willingness of both parties to negotiate. Seeking legal advice can help ensure the process runs smoothly and that all legal requirements are met.
Exit strategy | How it works |
|---|---|
Break Clause | A pre-agreed clause in the lease allowing early termination if conditions are met. |
Lease assignment | The tenant transfers the lease to a new tenant, who takes on all responsibilities and obligations. The landlord's consent is usually required. |
Lease surrender | A negotiated agreement between the tenant and landlord to end the lease early. The tenant may need to pay compensation. |
What happens when a commercial lease expires?
You might assume that once a commercial lease reaches the end of its term, it simply expires - but that’s not always the case. Whether a lease ends automatically or continues depends on whether it falls under the Landlord and Tenant Act 1954, which provides tenants with security of tenure - the right to stay in the property after the lease term expires.
If the lease is covered by the Landlord and Tenant Act 1954, it won’t automatically end when the term expires. Instead, it will continue unless one party formally ends it. If the lease has been opted out of the Act, security of tenure does not apply, and either party can end the lease without giving formal notice - they just need to confirm in writing.
How can a lease be terminated under the Act?
If the lease benefits from security of tenure, either the landlord or tenant can end it by serving one of the following statutory notices:
1. Section 25 Notice
If the landlord wants to terminate the lease, they must serve a Section 25 notice. The landlord can only refuse a lease renewal if they can prove a valid legal reason under Section 30 of the Act - such as the tenant failing to keep the property in good repair or repeatedly paying rent late. This notice prevents the tenant from automatically continuing the lease.
2. Section 26 Notice
If the tenant wants to leave or request a new lease on different terms, they can serve a Section 26 notice. This notice starts the lease renewal process or confirms the tenant’s intention to vacate.
💡 Top tip: If your commercial lease is approaching its end, check whether it includes security of tenure. If you're unsure of your rights or need to negotiate a lease renewal, seeking legal advice can help avoid unexpected complications.
FAQ
Can I end a commercial lease early without a break clause?
Yes, but you’ll need to negotiate with your landlord. Other options include subletting the space or assigning the lease to a new tenant, but these usually require landlord approval.
What happens if I abandon a commercial lease?
Walking away from a lease without a legal exit plan can have serious consequences. The landlord could take legal action against you, and you may still be responsible for rent and other costs until the lease ends or a new tenant takes over.
How much does it cost to surrender a lease?
It depends on factors like how much rent is left to pay and whether the landlord can easily find a new tenant. You may need to offer a financial settlement (sometimes called a surrender premium) to compensate the landlord.
Can a landlord refuse a lease assignment?
Yes, but they must have a valid reason (such as concerns about the new tenant’s financial stability). Many leases outline specific conditions for assignment, so check your contract or speak to a solicitor if you’re unsure.
Final thoughts
Ending a commercial lease requires careful planning, negotiation, and adherence to legal requirements. Whether through subletting, assignment, a break clause, a hand back provision, or lease surrender, each option has advantages and challenges. Consulting a legal or property professional can help ensure a smooth transition and minimise financial risk.
References
Ending a commercial property lease from Gov.UK
Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified legal professional.