Commercial Lease Renewal

Most business leases are protected under the Landlord and Tenant Act 1954, a piece of legislation that ensures a landlord cannot throw the tenant out onto the street when their business lease comes to an end.

The Act gives tenants two basic protections:

• The right to remain in the premises at the same rent and on the same terms after the lease comes to an end; and

• The right to automatically renew their lease in certain circumstances.

Some leases are not protected by the 1954 Act. Usually, this happens where the parties have built a clause into the original lease to opt-out of the Act’s protections. A commercial lease renewal solicitor will be able to tell you if the tenant has the right to renew. If they do not, the lease will end on a specified date and the tenant must vacate the property.

Either the landlord or tenant can initiate the lease renewal procedure. The 1954 Act sets out a strict procedure and time limits for the service of notices, counter notices and a court application. The time limits are critical – if they are missed, the right to renew the lease may be lost.

The landlord can activate the lease renewal procedure by serving a section 25 notice. This will state a termination date for the tenancy between six and 12 months from the date of the notice. The notice indicates whether the landlord will oppose a lease renewal and, if the landlord does object, clearly state a reason why they do not wish to grant a new lease.

A tenant can activate the lease renewal procedure by serving a Section 26 notice seeking a new lease and proposing the terms for a new tenancy. The same time frames apply, so it is important to start thinking about your options around a year before the lease comes to an end.

A landlord cannot refuse a lease renewal simply because they do not like the tenant. They can, however, oppose the renewal for one of the specified grounds laid down in the 1954 Act. The most common reasons are:

• Repeated non-payment of rent
• Tenant’s failure to repair the premises
• The landlord wants to occupy the premises for the purpose of its own business
• The landlord wishes to redevelop the property

For a full list of permitted reasons, it’s best to get in touch with a legal professional. You will need to take specific actions depending on the circumstances. The lease will continue until appropriate action is taken which may not be your business goal.

Once both parties agree that the lease will continue, the next step is negotiating the new terms. These terms can be whatever the parties agree. If they can’t agree, a Judge can decide the terms. In reality, it is extremely rare to go to court as most renewal leases are agreed between the parties and their professional advisors.

As a rule of thumb, the new lease will follow the terms of the old lease unless there is a good reason to make a change. The new rent generally will be the open market rent at the time of the lease renewal. Surveyors can determine the new rent and agree other key terms such as the term of the new lease and any break clauses.

Commercial lease renewals can be complicated and time-consuming, and they often require a joined-up approach from commercial property solicitors and property litigation solicitors. It is critical to be proactive and diarise key dates; otherwise, the right to renew the lease (or oppose its renewal) may be lost.

In addition, the parties will want to avoid other problems associated with lease expiry such as unwanted tenants remaining in occupation, or the tenant having an ‘irregular’ occupation and being vulnerable to losing the property. Hiring a solicitor is essential to avoid any unintended consequences.

At Osbornes, we offer a responsive service, with expert solicitors always on hand to give astute and pragmatic advice. Our approach is to get a thorough understanding of your business and its commercial goals, so that we can help you achieve the outcomes you’re trying to achieve.