A commercial lease’s rent is subject to periodic reviews, usually every three to five years. A rent review allows the landlord to reassess the value of the property and the rent being charged to account for fluctuations in the market and the property’s condition.
Most lease agreements for commercial real estate include a rent review clause that allows the landlord to increase or maintain the monthly payment regardless of how the market is doing. The review period is often laid out in the fine print of a business lease. This is something that needs to be settled between the two parties involved. In this article, Commercial Lease Renewal Process, we take a look at the process and mechanism involved.
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Do I have the right to renew my lease?
Yes, you can do this through direct discussion with the landlord, and you may also be entitled to security of tenure under the Landlord and Tenant Act of 1954, sometimes known as LTA rights. When this happens, the tenant can stay in the property through to the end of their lease and negotiate for a new lease with the landlord that is very similar to their current one.
Commercial lease renewal is possible, but only under certain circumstances and when the proper procedures have been fulfilled by the tenant.
At the conclusion of the current lease term, any tenant may request a renewal and this includes if the lease is contracted out. This type of lease renewal is far more typical of commercial negotiations, such as those that would have taken place before the first lease was awarded.
How do I actually renew the lease?
You can either approach the landlord and negotiate a new lease or you can follow the legal procedure and serve a s26 notice on the landlord if your current lease provides security of tenure.
In this notice, you will specify the conditions of the lease that you would like to have in place going forward, including the new rent, the length of the lease, and any other changes you would like to see made.
If the dispute ends up in court, the judge evaluating what the new lease should include will start with the terms of the old lease, so it’s best to stay close to those.
The new lease’s planned start date must be included in the s26 notice. After making a request, you must wait at least six months but no longer than 12 months. Lease negotiations cannot begin prior to the expiration of the current lease and cannot specify a start date earlier than that of the existing lease. If the lease has not yet expired, you can withdraw the s26 notice.
It should be noted that there are strict criteria on who can, when and how notices for lease renewals are served,
Can the landlord refuse to renew the lease?
After receiving a s26 notice, the landlord does have some recourse in the event that they choose not to renew your lease. Only certain reasons, such as the landlord’s desire to use the property for personal use or the landlord’s plans to renovate the property, qualify as justifiable grounds for termination.
It’s important to note that the landlord must meet certain requirements in order to decline a renewal request based on any of these reasons.
One cannot coerce a landlord into extending a lease to a “bad” tenant. For instance, if you’ve been late on your rent payments in the past, your landlord isn’t obligated to renew your lease.
If the landlord wishes to object to the issuance of a new lease and you have served them with a s26 notice, they have two months to do so.
What areas of the lease should I give consideration for negotiation?
Lease Length
Leases for commercial properties often run for five to ten years, but this can be negotiated with the tenant. You may be able to negotiate with your landlord for a lease extension or other benefits if relations between both parties are good.
When a new lease is created, Stamp Duty Land Tax (“SDLT”) may be due. This fee is discretionary and will vary dependent on the length of the lease and the annual rent. You may be obliged to pay SDLT or have the amount you must pay increased if the term is too long, even with a break provision.
Is there a break clause in the lease?
A business in challenging times may find relief in a break clause. Tenants or both parties to a lease may have the option to terminate the agreement prior to the lease’s expiration by exercising a break clause. A solicitor can help make sure that, notwithstanding any requirements, you can exercise a break provision if you ever need it.
Is there a possibility of a reduction in the rent?
Lease renewal time for businesses means taking stock of the local real estate market. While negotiating a lower rent, it can help to refer to price changes that have occurred after you signed the lease. Instructing a surveyor to examine the property will help you figure out if the rent is reasonable. The ability to negotiate a lower rent is helped by having an understanding of the prevailing market value.
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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How to Contact Our Commercial Property Solicitors
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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