Commercial Property Lease Renewals – Your Questions Answered

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 onto 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.

The process of commercial property lease renewals can often seem quite complex. Consequently, in this article, commercial property lease renewals – your questions answered, we have set out below some of the more commonly asked questions and provided answers to them.

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For a free initial discussion on how we can advise you upon the options for renewing a commercial lease, get in touch with us today. We are experienced in dealing with all aspects of commercial property law and we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.

1. What happens to my lease when it comes to an end?

If you occupy a property for business purposes, you should have the right to renew your tenancy when it comes to an end. However, there are a number of exceptions to this. The Landlord and Tenant Act 1954 allows the Tenant in this situation to renew his or her Lease at the market rent but otherwise on terms to be agreed between the parties. The maximum new term to which the tenant is entitled is 15 years although longer periods can be agreed upon with the Landlord.

2. What does it mean if my lease is “contracted out” of the Landlord and Tenant Act 1954?

It is possible for a Landlord and Tenant to agree before entering into a commercial Lease that it will not continue when it comes to an end and the Tenant will have no right to renew. If a Lease is “contracted out” there should be a clause in it confirming this and stating the date of the court order approving this. The court order itself is usually kept with the Lease. If your Lease is contracted out, you have no right to renew. If this is the case, just because you have no right in law, it doesn’t mean you can’t approach the landlord and see whether he or she is willing to negotiate.

3. Can the tenant apply to the courts to renew the lease if the tenant has already agreed to “contract out” of the Landlord and Tenant Act 1954?

No, if the landlord and the tenant have already contracted out then when the lease has expired, the tenant will be unable to apply to the court for a new tenancy.

4. What forms are used for renewing and terminating the lease?

Assuming that the parties have not contracted out of the Landlord and tenant Act 1954, each party will need to use a specific form to end or renew the tenancy. Landlords must use a Section 25 Form while tenants must use a Section 26 Form. If the Landlord has already proceeded with a Section 25 Form, the tenant cannot use the Section 26 Form. Similarly, if the Tenant has already commenced with a Section 26 Form, the landlord cannot use the Section 25 Form.

5. Is there anything the landlord can do to stop a tenant serving a Section 26 request?

Yes – the Landlord can serve a Section 25 Notice on you terminating your Lease on a minimum of 6 months’ and a maximum of 12 months’ notice. The earliest date on which a Landlord can serve a Section 25 Notice is the same as that on which the Tenant can serve a Section 26 Request.

6. What are the prescribed grounds under which a landlord can oppose granting a new tenancy?

Under s. 30(1) of the Landlord and tenant Act 1954, the grounds on which a landlord may oppose an application for a new tenancy are:

• where under the current tenancy the tenant has any obligations as respects to the repair and maintenance of the property, the tenant ought not to be granted a new tenancy in view of the state of repair of the property, being a state resulting from the tenant’s failure to comply with their repairing obligations.
• the tenant ought not to be granted a new tenancy if his or her rent is regularly late.
• the tenant ought not to be granted a new tenancy due to substantial breaches of his or her obligations under the current tenancy, or for any other reason connected with the tenant’s use or management of the property.
• that the landlord has offered and is willing to provide or secure the provision of alternative accommodation for the tenant, that the terms on which the alternative accommodation is available are reasonable having regard to the terms of the current tenancy and to all other relevant circumstances, and that the accommodation and the time at which it will be available are suitable for the tenant’s requirements, having regard to the nature and class of his or her business and to the situation and extent of, and facilities afforded by, the property.
• where the current tenancy was created by sub-letting part of the property comprised in a superior tenancy and the landlord is the owner of an interest in reversion expectant on the termination of that superior tenancy, that the aggregate of the rents reasonably obtainable on separate lettings of the holding and the remainder of that property would be substantially less than the rent reasonably obtainable on a letting of that property as a whole, that on the termination of the current tenancy the landlord requires possession of the holding for the purpose of letting or otherwise disposing of the property as a whole, and accordingly the tenant ought not to be granted a new tenancy.
• on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises or a substantial part of those premises or to carry out substantial work of construction on the property (or a part of it) and that he or she could not reasonably do so without obtaining possession of the property.
• on the termination of the current tenancy the landlord intends to occupy the property for the purposes, or partly for the purposes, of a business to be carried on by him or her, or as his or her residence.

7. I currently sublet part of the premises in my Lease. Will this stop me renewing it?

You must be in occupation of the premises in order to have the right to renew your Lease so you have no right to renew sub-let parts. You can serve a Section 26 Request for a new tenancy just for those parts where you are in occupation. If the sub-tenancy comes to an end and your Tenant moves out before your own Lease expires you will then be in a position to serve a Section 26 Request for the whole of the premises in the Lease. Even if you are only in a position to serve a Section 26 Request for part of the premises, your landlord can require you to take a new Lease of the whole of the premises. Alternatively, the Landlord can deal directly with your sub-tenant in respect of those parts where you are not in occupation yourself – it is the Landlord’s choice. The same considerations apply to a Landlord serving a Section 25 Notice.

8. When should the forms be sent to the other party?

The parties can send a form to the other party no less than 6 months and no more than 1 year prior to the end of the tenancy. Neither party can ask for the tenancy to end prior to the end date specified in the lease.

9. What happens if neither the landlord nor tenant has submitted a notice?

Assuming that the landlord and tenant have not come to an agreement and notice has not yet been served (or it has been served but it expires after tenancy expiry), the Landlord and tenant Act 1954 provides that the tenancy is continued until it is brought to an end either by a section 25, 26 or 27 notice, by court order, by the grant of a new tenancy, or by forfeiture or surrender.

10. Are there any advantages if I do have to leave the premises as a result of the Landlord proposing renewal on the grounds of redevelopment or own occupation?

The Landlord must pay compensation when you leave the premises as a result of a notice served by the Landlord on the grounds of a redevelopment or own occupation. Compensation is calculated by reference to the rateable value of the premises. If you have been a Tenant for more than 14 years you will be entitled to twice the rateable value. Under 14 years and compensation is half that, based upon once the rateable value.

11. I want to renew my Lease. Should I go ahead and serve a Section 26 Request now or wait and see whether the Landlord serves a Section 25 Notice?

The longer the Landlord leaves it to serve a Section 25 the more the potential advantage there is for you by serving a Section 26 Request. If the Landlord has not served a Section 25 Notice several months after he could first have done so, you can serve a Section 26 Request giving the maximum 12 months’ notice to expire following the end date stated in your lease. The advantage is that you will have the certainty of another year’s occupation and this will be at the current rent. The later you serve a Section 26 Request the longer this rent advantage will apply.

12. Will the rent stay the same after the Section 25 Notice or Section 26 Request has expired?

The rent will stay the same unless either Landlord or Tenant has applied to the court for an interim rent to be fixed. The earliest date when interim rent will apply is immediately following the expiry date in the Section 25 Notice or Section 26 Request. Interim rent will take effect from whenever an application for it is made but is not usually determined until the court deals with the main application for a new tenancy. It is usually fixed somewhere between the old and new rents, on a sliding basis. If the market rent is likely to be more that the current rent it is the Landlord who will wish to apply for an interim rent. The reverse applies if the market rent is likely to be lower than the current rent.

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.

Authored by Ben Posted in Commercial Property, News Tagged as

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