What happens to an underlease on termination of the lease?
What happens to an underlease on termination of the lease?

The following Property guidance note provides comprehensive and up to date legal information covering:

  • What happens to an underlease on termination of the lease?
  • Consensual termination—surrender and merger
  • Surrender and grant of new lease
  • Exercise of break clause
  • Issues for the tenant
  • Issues for the undertenant
  • Security of tenure
  • Forfeiture
  • Protection for undertenant—relief from forfeiture

The general common law principle is that when a lease comes to an end any underlease automatically terminates.

Consensual termination—surrender and merger

Statute intervenes on surrender of a lease. It is a consensual termination and the tenant's interest is deemed to pass to the landlord subject to the rights of the undertenant. The effect of a merger is the same.

Surrender and grant of new lease

The same applies if the lease is surrendered (by deed or by implied surrender) for the purpose of granting a new lease. The tenant or new tenant has the same rights against the undertenant (insofar as they do not exceed those in the surrendered lease) and the undertenant has the same rights under the underlease as if the original lease had not been surrendered.

Exercise of break clause

An underlease automatically terminates on the exercise by either the landlord or the tenant of a break clause in the lease. It is a unilateral act which does not need the consent of the other party. Even where the break notice is served by agreement between the landlord and tenant in a deliberate attempt to obtain vacant possession against the undertenant, the notice does not take effect as a surrender despite its consensual nature. This is a matter