Checking to see whether a commercial lease is protected under the Landlord and Tenant Act of 1954 is crucial when it becomes time to renew the lease. Either party may request a renewal of a lease that is covered by the Act (sometimes called “protected”) at the conclusion of the lease term. On the other hand, if the lease is not covered, (sometimes called “unprotected”) the landlord gets to decide whether or not to renew it.
Whether or not the lease falls under the act, the subject of renewal fees often comes up and in this article, Are Lease Renewal Fees Allowable, we discuss this matter in more detail.
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Are lease renewal fees allowable and if so, who pays?
Yes, there are fees associated with a commercial lease renewal.
It is essential to bear in mind the overall price when you negotiate the renewal of your commercial lease. This is in addition to any rent reductions, upfront rent-free periods, or other lease incentives (like a monetary contribution towards renovations) that you have agreed to as part of the new lease.
In addition, make sure you know your rights if your landlord decides not to renew your lease on “non-hostile grounds,” such as if you made modifications to the property or if you were evicted. Each party is responsible for their own portion of the lease renewal price; but, if mutually agreeable, you may be able to split the cost.
Keep an eye on any completion statement with solicitors since this lease renewal cost is sometimes withheld from rents and other money.
Renters should factor in taxes such SDLT stamp duty, which is owed on longer and higher-value leases. Changes in income tax, capital gains tax payments, and value-added tax liability, as well as the impact of changing rental rates, are all important considerations.
Landlords can’t charge exorbitant rates if they know their tenants have a right of renewal. It must be based upon prevailing market conditions. Consult a lawyer if you have any questions or concerns regarding the terms being offered. You can ask the courts to decide the terms if you can’t come to an agreement.
During the lease term, your landlord may increase the rent as well (rent review dates). You should consult a lawyer for guidance if you are facing a rent increase.
What is the process of lease renewal?
When the term of a business lease is up, the parties can agree upon an informal renewal agreement. If the parties are unable to come to an agreement and the lease falls under the security of tenure provisions of the Landlord and Tenant Act 1954 (‘1954 Act’), sometimes known as ‘automatic rights of renewal,’ then either party may serve notice on the other, with time being of the essence.
The 1954 Act specifies different renewal procedures for a lease depending on who starts the renewal process. In the event that negotiations with the other party fail, neither the landlord nor the tenant can file a lawsuit until one of them has given the other the following notice:
The Landlord terminates the present lease by serving the Tenant with a Section 25 notice. In cases where the landlord is ready to extend the lease, the notice will detail the terms of the renewed agreement. The Tenant is not obligated to agree to these terms. It is prudent, however, to make every effort to settle out of court.
Landlords can discontinue a lease with a Section 25 notice as early as six months and as late as 12 months before the end of the lease term. It is not possible for the landlord to terminate the lease prior to the conclusion of the term.
The tenant requests a new lease by giving the landlord a Section 26 notice. The Section 26 notice follows a format similar to that of the Section 25 notice given by the landlord, except it will instead detail the tenant’s proposals.
The Section 26 notice must be given by the tenant at least six months and no more than 12 months before the date the tenant wants the new lease to begin. It is not possible for the tenant to begin a new lease before the current lease has ended. If the landlord objects to the tenant’s new lease in the Section 26 notice, they have two months from the date they received the notice to react.
Both parties are precluded from giving notice to each other if one has already given notice. If the tenant has given the landlord a Section 26 notice, the new tenancy may begin as soon as the tenant has paid the landlord the interim rent required by Section 24B of the Landlord and Tenant Act 1954.
The lease will expire as of the stated date regardless of whether or not the parties have opted out of the security of tenure requirements of the 1954 Act. The Tenant will have no right to remain in the property unless the Landlord, at their sole discretion, extends a new lease to the Tenant.
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We have a proven track-record of helping clients draft a commercial lease. We are a multidisciplinary firm and have all the expertise inhouse to satisfy the most exacting requirements of our clients. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
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It is important for you to be well informed about the issues and possible implications of signing a commercial lease. However, expert legal support is crucial in terms of ensuring a positive outcome to your agreement.
To speak to a member of our New Enquiries Team 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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