A tenant of a business lease has a statutory right to a new lease at the end of the contractual term if the Landlord and Tenant Act 1954 (1954 Act) applies to the tenancy and the lease has not been contracted out.
If the parties cannot agree terms on renewal, either the landlord or tenant may apply to the Court, and the Court will determine the terms of the new lease. However, it is important to appreciate that if the parties cannot agree, the Court can only award a maximum renewal term of 15 years and there are other limitations placed on the Court when negotiating the terms of a new lease as follows:
- The Court can only order a new tenancy of the part of the premises that the tenant actually occupies for the purpose of its business (unless the landlord requires the tenant to take a new lease of the whole of the premises, even if the tenant only occupies part);
- The Court can only order that the new tenancy commences when the current tenancy ends, which if an application to the Court has been made will be 3 months after the order for the grant of the new tenancy;
- The Court has no discretion on the rent payable and will decide the rent as a matter of valuation based on expert evidence from both sides.
The landlord and the tenant are of course free to agree the terms of a new lease between them, which is advantageous to both parties. Both parties should bear in mind the limitations placed on the Court when negotiating, as it is unlikely a party will be willing to agree a term that the Court could not order without there being concessions in return. For example, if the tenant has a 1954 Act protected long lease the tenant may be willing to agree more favourable landlord terms in return for a term longer than 15 years.
Therefore you should take early advice from your legal advisors in respect of the renewal of protected long leases to ensure that you can start early negotiations to avoid making an application to the Court, which can be costly and end up with a result the landlord does not want.