Commercial Lease Expired Still Paying Rent

Commercial tenants usually remain in a property when a lease has expired because they are still negotiating the terms of a new, renewed lease with the landlord or they have an informal agreement to stay on. Whether a commercial tenant is on a protected or unprotected lease, their legal status will be affected by the specific circumstances of the case. Particularly important factors include the lease’s status in terms of the Landlord and Tenant Act 1954, whether the tenant is still paying rent, and whether new lease negotiations are taking place. In this article, commercial lease expired still paying rent, we take a look at the circumstances under which this may occur.

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The different types of commercial lease

If a commercial lease is protected by the Act, it will be granted security of tenure. This will put the tenant in a strong position if the lease expires. For commercial tenants on protected leases, as long as they continue paying rent what happens when the lease expires is largely up to them as the lease will turn into a periodic tenancy and retain protection from the Act. However, landlords can take specific steps to end the lease and tenants might sometimes wish to alter the terms of their occupation. In these cases, the expiration of the lease could pose challenges for the tenant.

Leases specifically excluded by the Act have considerably less legal protection. However, unprotected commercial leases do still have certain rights and there are steps the tenant can take to reach an acceptable outcome, depending on their aims, should the lease expire.

Protected leases

Unless expressly excluded in the lease agreement, most commercial leases come under the protection of the Landlord and Tenant Act 1954. The Act then gives commercial tenants the right to keep occupying a property on the same terms as expressed in the original lease if the statutory renewal process was not triggered by the lease’s expiry date. The lease will become a periodic tenancy and the tenants will need to give 3 months’ notice prior to vacating the premises.

Commercial lease tenants on a periodic tenancy are also covered by the Act when it comes to the right to seek a new lease with open market rent. A tenant may wish to do this if there is a change in demand and supply of commercial premises in the area which is bringing down rental rates. If the tenant seeks a new lease they should ensure it is also protected by the Act in order to retain legal protection should the landlord try to end the tenancy. If the landlord refuses to renew the lease, tenants can apply to the courts for a new lease to be granted.

In commercial leases protected by the Act, including a Periodic Tenancy, landlords can only remove the tenant’s renewal rights if the landlord serves the tenant a notice through what is known as a Section 25 form and is able to prove “reasonable grounds” for repossession of the property. Reasonable grounds can include:

• If the tenant has regularly been late with rental payments.
• Subject to the lease, the tenant fails to carry out repairs to the property.
• If the tenant is in breach of any of his or her obligations as stipulated by the lease.
• If the landlord has decided he will occupy the property himself.
• If the landlord plans to renovate the property and requires the building to be empty in order to do so.
• If the tenant is renting a small part of a larger building and the landlord decides to rent out the whole property.
• If the landlord is able to offer the tenant alternative similar accommodation of suitable quality.

Even the more common grounds for serving notice on a commercial tenant are often difficult to prove, leaving commercial tenants with leases protected by the act in a strong position should they wish to remain in the property. Also, the landlord has to pay the tenant compensation if he requires the tenant to vacate on a no-fault basis such as the landlord wishes to occupy the premises himself. This is a great negotiating tool.

Unprotected leases

Commercial leases are automatically protected by the Landlord and Tenant Act 1954 unless the landlord has followed a specific protocol and arranged that both parties “contract out” of the Act’s protections prior to the lease being signed. For this to happen the landlord must serve the prospective tenant with a formal notice, the tenant must respond with a declaration stating that they fully understand the rights they are forfeiting, and protection from the Act must be removed from the lease before it is signed.

If the tenant can prove that the above criteria were not met then they can still claim rights under the Act. However, if the correct protocol was undertaken, the commercial lease is not protected and the tenant rights to remain in the property or renew the lease once it has expired are not automatic.

If the tenant was asked to leave the premises by the landlord and refuses, the landlord should have put in place a rent stop. However, the landlord will be able to claim for what are known as “mesne” profits for the duration that the tenant remains in the property after the lease expires. Mesne profits would equate to the letting value of the premises, so could exceed what a tenant was paying in rent. Tenants can also be held liable for losses incurred by the landlord during their post-lease occupation as well as the cost of any damages to the property.

In some cases, as long as the tenant is paying rent and has a good history with the landlord, courts may rule that the lease has become a periodic lease. This is particularly likely if there are ongoing negotiations with the landlord regarding a potential lease renewal. Tenants who are in rental negotiations should be cautious of signing written tenancy at will which would prevent them from being able to make a claim to periodic tenancy and protection from the Act while allowing the landlord to keep taking rent.

How we can help

We have a proven track record of dealing with and advising upon 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.

How to Contact our Commercial Property Solicitors

It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of ensuring you do not agree to anything in a commercial lease that you come to regret.

To speak to our New Enquiries Team today, simply call us on 0345 901 0445, or allow a member of the team to get back to you by clicking here to make a new enquiry.

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Authored by Ben Posted in Commercial Property, News Tagged as