A commercial lease is a form of legally binding contract made between a business tenant and a landlord. The lease gives the tenant the right to use the property for business or commercial activity for a set period of time. In return for this, rent will be paid to the landlord. The lease will also outline the rights and responsibilities of both the landlord and the tenant during the lease period. When renewing a commercial property lease, most businesses are protected under the Landlord and Tenant Act 1954. The act ensures a business tenant cannot be thrown on to the street and in certain circumstances provides tenants with certain rights when it comes to renewing a lease which is at its end. Even if a lease reaches its expiry date, the 1954 Act means it does not automatically come to an end. Potentially, it could carry on indefinitely until one of the termination procedures outlined in the act are triggered to bring about its conclusion. In this article, commercial lease renewal procedure, we take a look at the process and mechanism involved.
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What is the procedure for a tenant to start a lease renewal?
In order for a tenant to initiate a lease renewal, he or she must serve a ‘Section 26’ notice on the landlord between 6-12 months before the proposed start date of the new lease. A tenant is legally entitled to propose terms, but if both parties cannot reach an agreement on what is ‘fair’, either one can apply to a court to set them. Even if renewal terms cannot be agreed, it is extremely rare for proceedings to end up being resolved in court.
What is the procedure for a Landlord to start a lease renewal?
If the landlord initiates the renewal, a ‘section 25’ notice is served on the tenant between 6 and 12 months before the termination date. The termination date may be the date specified in the lease or, if the lease is holding over, a date in the future (at least 6 months after the notice is served).
The section 25 notice will either state the landlord’s proposed terms or alternatively state a reason why he does not wish to grant a new lease.
If the tenant opposes the new terms and the parties cannot agree them, either party may ask the court to decide on fair terms.
Can a landlord refuse to renew a lease?
A landlord can object to a lease renewal instigated by a tenant, but they must explain why and on what grounds, in accordance with the permitted reasons laid down in the 1954 Act. A landlord cannot oppose a lease renewal simply because they do not like the tenant. But if they do not want to offer a new lease, they must serve a counter-notice within two months to confirm the grounds why not.
There are several grounds on which this can be done, but the two most common are:
• Landlord requires premises for purposes of its own business
• Redevelopment of premisesOthers reasons include:
- Non-payment of rent
- Breach of covenant to repair
Does the lease contain a security of tenure provision?
Security of tenure is a right to automatically renew a commercial lease at the end of the term. A tenant will automatically have security of tenure unless he or she specifically agreed in the lease to exclude this right. If the lease has an exclusion clause, the tenant will have signed a statutory declaration before entering into the lease to confirm that he or she has been notified of this.
If there is no security of tenure, the lease will end on a date specified in the lease and the tenant must vacate the property by this date. The landlord may be prepared to offer a new lease before the end of the term but there is no obligation for him to do so. Therefore, lease renewal will be up to the landlord.
Tenants with security of tenure, will have an automatic right to lease renewals at the end of the term. The landlord can only refuse a new lease if one of the grounds under the Landlord and Tenant Act apply. The landlord or the tenant can initiate the renewal process. If neither party initiates the renewal process, the lease will continue under the same terms. This is referred to as ‘holding over’.
How we can help
We have a proven track record of helping clients deal with the renewal of commercial leases. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of commercial property services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/commercial-property-services/
How to Contact Our Commercial Property Solicitors
It is important for you to be well informed about the issues and possible implications of buying, selling or leasing commercial property. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Commercial Property solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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