Leases come in all shapes and sizes and set out the terms under which you occupy your commercial property. On signing a lease, you can negotiate with the landlord terms which are suitable for you both. This article will look at commercial lease renewals and how they work once your current lease has expired.
Your current lease
When considering a lease renewal, you will need to know which of two types of lease you have. Do you have a lease with or without ‘security of tenure’? Security of tenure is a right to automatically renew your lease at the end of the term, and is governed by the Landlord and Tenant Act 1954. You will automatically have security of tenure unless you have specifically agreed in your lease to exclude this right. If your lease has an exclusion clause, you will have signed a statutory declaration before entering into the lease to confirm that you have been notified of this.
No security of tenure
If you don’t have security of tenure, your lease will end on a date specified in the lease. You must vacate the property by this date. The landlord may be prepared to offer you a new lease before the end of the term; but there is no obligation for him to do so. Therefore, whether you can renew your lease will be up to the landlord.
Security of tenure
Tenants with security of tenure, you also have an automatic right to lease renewals at the end of the term. The landlord can only refuse a new lease if one of the grounds under the Landlord and Tenant Act apply. These include, for example, non-payment of rent or breach of lease; the landlord wanting to develop the property; or the landlord wanting take back possession to occupy. The landlord or the tenant can initiate the renewal process. If neither party initiates the renewal process, the lease will continue under the same terms. This is referred to as ‘holding over’.
Landlord initiates renewal
If the landlord initiates the renewal, a ‘section 25’ notice is served on the tenant between 6 and 12 months before the termination date. The termination date may be the date specified in the lease or, if the lease is holding over, a date in the future (at least 6 months after the notice is served).
The section 25 notice will either state the landlord’s proposed terms or alternatively state a reason why he does not wish to grant a new lease.
If the tenant opposes the new terms and the parties cannot agree them, either party may ask the court to decide on fair terms.
Tenant initiates renewal
If you are a tenant wishing to initiate the process of a renewal lease, you are entitled to serve a ‘section 26’ notice on the landlord. Again, this must be between 6 and 12 months before the proposed commencement date of the new lease. The tenant can propose terms. If the parties don’t agree the terms, either party may apply to court to decide them.
Where the landlord is not prepared to offer a new lease, he must serve a counter-notice within 2 months of receiving the notice to confirm his grounds for opposition.