Renewing a Commercial Lease
Once you have found a commercial property which provides the location and facilities you need to conduct and grow your business, the last thing you need is to be unable to renew your lease when it expires. Fortunately, under English law, commercial tenants are well-protected under the Landlord and Tenant Act 1954.
For any business, no matter how big or small, a commercial property can be one of the biggest overheads and assets, so conducting a commercial lease renewal can be extremely beneficial for a business that would like to keep their existing property. Therefore, it is important you equip yourself with the suitable commercial property lawyers who can protect your interests.
What protection does the Landlord and Tenant Act 1954 provide to business tenants?
The Landlord and Tenant Act 1954 (the Act) provides commercial leaseholders ‘security of tenure’. This means they have a statutory right to renew their tenancy upon expiry.
In most cases, a landlord and tenant will negotiate the terms of a new lease between themselves. However, if they cannot agree, either party can apply to the court to have a new tenancy granted. Generally, if there is a dispute over the terms of the new lease, the court will apply a market rent based on expert evidence and strive to keep the status-quo regarding other terms of the lease such as the right to make alterations.
In addition, the Act provides a business tenant the right to apply to the court for a new lease should their landlord decide to refuse to renew the tenancy for a reason which is not permitted under the Act.
Does the Act cover every type of commercial lease?
There are certain business tenancies that cannot benefit from security of tenure. These include tenancies concerning:
- Mining
- Farming
- Fixed-term tenancies of six-months or less (although these can enjoy security of tenure after 12 months as can periodic tenancies)
- Where there is a licence to use the land rather than a lease
- Sub-letting where the leaseholders are not occupying the premises themselves
- Long leases extended under the Leasehold Reform Act 1967
- 'Service tenants’ employed by the landlord
- Tenants who have contracted out of the Act
What does it mean to contract out of the Landlord and Tenant Act 1954?
A commercial landlord and tenant can agree to contract out of the security of tenure provisions. If a tenant states they wish to contract out of the Act’s provisions, the landlord has a statutory obligation to provide notice of at least 14 days to the tenant, explaining the consequences of forfeiting their right to security of tenure. If it is not possible to provide 14 days’ notice, the tenant is required to sign a statutory declaration stating they fully understand the consequences of their decision to contract out of the Act.
If you waive your right to security of tenure, your landlord has no obligation of a commercial lease renewal when it expires.
How do I renew my commercial lease?
To have a commercial lease renewal, you need to inform your landlord 6-12 months prior to the lease’s expiry date that you wish to renew. Make sure you state the terms of the lease, such as the amount of rent paid and the duration of the new lease in the renewal notice.
Your landlord will have two months to dispute the granting of a new lease on one of the grounds listed below.
Are there any situations where the landlord can refuse to renewing a commercial lease protected by security of tenure?
Under the Act, a landlord can only refuse to grant a new lease in the following circumstances:
- The tenant has breached their obligations, i.e. failed to keep the premises in good repair, or has regularly been late in paying rent
- The landlord offers to provide other, suitable premises
- Where a sub-tenant who is occupying part of the building wishes to renew their lease, but the landlord wants to rent the premises as a whole
- The landlord wants to demolish or rebuild the premises
- The landlord wishes to occupy the premises themselves
If the landlord decides not to renew a tenancy protected by security of tenure on one of the above grounds, they must issue a Section 25 notice to the tenant. A failure to respond to a Section 25 notice means the business tenancy will end on the date specified.
If the landlord decides to end the tenancy on one of the grounds that does not involve ‘fault’ on the part of the tenant, i.e. they wish to re-occupy the building themselves, the tenant may be entitled to compensation; however, the court will not order the lease to be renewed.
To ensure you do not encounter a stressful dispute when renewing your lease, it is recommended you seek legal advice prior to applying for renewal.
Guillaumes LLP Solicitors is a full-service law firm based in Weybridge, Surrey. We have highly experienced commercial property solicitors who can assist you with renewing a commercial lease. To make an appointment, contact us today.