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When a commercial lease is coming up for a renewal it can now present the Tenant/Lessee with an interesting and possibly lucrative opportunity. It could also prove to be unusually expensive!
When considering a Lease renewal, you firstly need to know which of the two types of Leases you have.
The meaning of Security of Tenure is a right to automatically renew your Lease at the end of the term which is governed by the Landlord and Tenant Act 1954.
You will automatically have Security of Tenure unless it was agreed in the Lease when it was first granted to exclude the right. If the Lease had an exclusion clause, then you would have signed what is called a “Statutory Declaration” before entering into the Lease to confirm that you had been notified of this.
If there is no Security of Tenure, the Lease will end on the date stated in the Lease and ordinarily the Lessee/Tenant must vacate the Property by the date specified in the Lease. However, the Landlord may offer a new Lease before the end of the term but the Landlord is not under an obligation to do so.
Two of the crucial terms of the new lease will be the length of the lease and the rent to be paid. These are areas where lessees may have an opportunity to negotiate.
Long leases are not terribly common these days. Also rents in some cases have been falling- you only have to look at what is happening on the high street and some shopping centres to discover that some Landlords are having to reduce rents to keep their buildings let.
If, the Tenant has Security of Tenure, the Tenant will have an automatic right to lease renewals at the end of the term. The Landlord can only refuse a new Lease under grounds listed under the Landlord and Tenant Act which include, for example, non-payment of rent, breach of the Lease, the Landlord wanting to take back possession to occupy, the Landlord wanting to develop.
The Landlord or Tenant can initiate the renewal process and if neither party do this, the Lease will continue under the same terms, which is known as “holding over”.
If the Landlord does initiate the renewal, then a notice is served called “Section 25 Notice” which is then served on the Tenant between 6-12 months before the termination date of the Lease. The termination date may be the date specified in the Lease or if the Lease is holding over, a date in the future (6 months after the notice is served).
The Notice will either state the Landlord’s proposed terms or a reason why he does not want to grant a Lease.
If the Tenant opposes on the new terms and neither party can agree the terms, either party can then ask the Court to decide the terms fairly.
If, however, the Tenant wishes to initiate renewal of the Lease, they are entitled to serve a Section 26 Notice on the Landlord which must be between 6-12 months before the commencement date of the new Lease. The Tenant, can propose terms and if neither party agrees the terms, either party can then apply to the Court to decide the outcome. If the Landlord is not prepared to offer a new Lease, then the Landlord has to serve a counter-notice within 2 months of receiving the notice to confirm the Landlord’s grounds for opposing this.
In reality most commercial leases get renewed after periods of negotiation and without the courts getting involved.
It is important that the expiry dates of leases are know by the Tenant and that if a tenant wants to stay in a property that the research to ascertain the going rate for rents is undertaken in good time.
It should also be borne in mind that most leases will also have some form of dilapidations clause. There may be an obligation for a tenant to repair the property before the end of the lease and ensure that the repairing obligations in the lease are complied with. These repairing obligations could run into tens of thousands of pounds. If you have a commercial lease and would like it reviewed and your obligations clarified contact a member of Commercial Property team.
In the meantime, as ever, get in contact directly if we can help you with any commercial property law queries or concerns. If our commercial team can be of any assistance please do not hesitate to get in touch with us or contact any of our offices: Banbury, Bicester, Rugby and London.
You can contact us directly on 01295 270999 or visit our website.
Please treat the contents of our blogs as general guidance only. Please do not take any action based on their contents unless you have sought specific legal advice. Brethertons cannot accept responsibility for any errors or inaccuracies, loss or damage in circumstances where there is no formal retainer between us and we have not given you personal and specific advice relating to a matter for which you have given us full background details. You must also bear in mind that the contents of our blogs are based on English Law, and because they contain archival material, that material is likely to go out of date. Therefore, it is important to consider the date that the blog was posted. Please also remember that the law may differ in different Jurisdictions.