What happens to an underlease on termination of the lease?

The following Property Disputes practice 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
  • Expiry of contractual term
  • Forfeiture
  • Protection for undertenant—relief from forfeiture
  • Assured and assured shorthold tenancies

What happens to an underlease on termination of the lease?

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. The underlease survives and the landlord takes the benefit and burden of the underlease covenants.

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 and the undertenant has the same rights under the underlease as if the original lease had not been surrendered. The landlord has the same rights to use commercial rent arrears recovery and to forfeit for breach of the new lease, so far as the new covenants are no more onerous than under the original lease.

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

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