Commercial leases are binding contracts between tenants and landlords. Throughout the lease period, you have the sole right to use the leased property for business or commercial purposes. To do so, you’ll need to make a monthly payment to the landlord (“rent”). The lease will outline the rights and responsibilities of the landlord and tenant throughout the duration of the lease.
The right to renew a commercial lease is granted so that tenants are not forced to depart the premises at the conclusion of the lease term if they have not been offered the option to renew the lease. A landlord cannot refuse a new lease without a good reason under the 1954 Act. There are a number of reasons why a landlord can object to a Section 26 request from a tenant within the allotted two months after receiving the request.
In this article, Can A Landlord Refuse To Renew A Commercial Lease, we take a look at the process and mechanism involved.
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The Landlord and Tenant Act 1954
United Kingdom commercial leases can be broken down into two categories: those that are covered by the security of tenure provisions of the Landlord and Tenant Act 1954 (“the Act”), and those that are not.
In most cases, the Act ensures that an existing business tenant may extend its lease on the building it currently occupies.
The lease is automatically renewed, and the tenant continues to occupy the space under the same terms and circumstances as previously if the lease expiration date passes without the tenant beginning the statutory renewal process stated in the Act. Assuming that’s the case, the tenant just needs to give three months’ notice before moving out.
A Tenant has the option to renegotiate the lease at the current market rate even if the lease is set to automatically renew. If rents in the region are dropping, or if the tenant just wants peace of mind that the landlord won’t try to evict them, this may be a good option. Keep in mind that the Landlord also has the option to extend the Lease Term. It’s possible the landlord will do this if rents are rising or if he or she believes a longer fixed lease will raise the value of the property.
Can a landlord refuse to renew a commercial lease?
A landlord can challenge a tenant’s renewal rights under the Act if the landlord can provide evidence of one of the reasons for not renewing that are specified in the Act.
For example, if the landlord wants to move into the leased space, if demolition is required for redevelopment, or if the tenant has committed material breaches of the agreement, the landlord may refuse to renew the lease.
Tenants have a legal right to monetary compensation if their landlord successfully blocks them from renewing their lease on the basis of self-occupation or redevelopment.
If tenants disagree with the landlord’s power to object to the new lease, they can approach a court to make a decision on the matter.
What are the grounds for a landlord’s refusal to renew the lease?
Breaches of tenant obligations
A Landlord has a burden of proof to establish that the tenant’s breaches are serious enough that the tenant “ought” to be denied renewal of the tenancy. A court will be less likely to rule against a new tenancy being granted on the basis of a breach if the landlord has previously waived or consented to the breach. The court will look at the tenant’s history and the circumstances surrounding the breach.
The Landlord intends to occupy the property
A Landlord must demonstrate he/she has a bona fide intent to use the property for their own purposes. The landlord must have had continuous ownership of the property for at least five years prior to the expiration of the existing tenancy.
The Landlord intends to redevelop or even demolish the property
A Landlord must prove that he intends to demolish or reconstruct all or a significant portion of the premises comprising the holding, or that he intends to execute a large schedule of works of reconstruction that he cannot reasonably perform without obtaining ownership of the premises.
If the tenant failed to fulfil his/her repairing obligations
A Landlord has the burden of proof that the tenant “ought not to be allowed a new tenancy” due to the condition of the property. If the tenant is found to have neglected to maintain the property in a decent condition, the landlord does not have grounds to reject the application. The Tenant’s offer that a new tenancy should include a covenant requiring the Tenant to quickly repair the premises as required by the prior lease may be considered by the court.
If the rent is often late
A Landlord has the burden of proof that the tenant “ought not to be granted a fresh tenancy” due to the tenant’s repeated breaches of the lease’s rent payment provisions. The court’s primary concern will be whether or not the landlord may reasonably expect timely rent payments in the future from the tenant.
When a tenancy falls outside of the Act, what happens?
A tenant who does not have a right to renewal under the lease or security of tenure under the Act must vacate the premises at the end of the lease term. Nonetheless, it’s important to finalise a new lease agreement in plenty of time to move to a new location if the landlord backs out. Landlords typically provide short-term leases or licences to tenants who wish to continue in their spaces for a set period of time following the end of their current leases.
How we can help
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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