“I am running my business from a commercial property that I lease from my Landlord. The lease will come to an end soon; what do I need to do to protect my business and to continue to trade from the Property?”
You first need to check what type of lease you hold.
If the lease is an “Excluded Lease”, which removes the statutory right to a new lease once the current one ends, then if you cannot agree satisfactory new terms with the Landlord you will have to leave on expiry of the lease term.
Click here if you require further advice on your obligations on the termination of your Excluded Lease and how you can best protect yourself from a landlord’s claim for “dilapidations”.
You can tell if your lease is an “Excluded Lease” since you are likely to have made a Statutory Declaration before a solicitor about the exclusion shortly before the lease began. Reference should be made to this in the lease document, most usually towards the end of the main body of the lease, before its Schedules. Wording will refer to something along the lines of “ Prior to the date of this lease the Landlord served notice on the Tenant pursuant to the provisions of the 1954 Landlord and Tenant Act Section 38A(3) and on [date] the Tenant made a declaration ………”
The rest of this blog deals with the situation in relation to Leases that are not Excluded Leases.
Landlord and Tenant Act 1954 (“the 1954 Act”) – Lease renewal
Where a Landlord serves a notice on a Tenant seeking to terminate a commercial lease a Section 25 Notice (“the Notice”) can state that either the Landlord does not wish to grant the Tenant a new lease, or that the Landlord is content to grant the Tenant a new lease from the termination of the existing one on suitable terms.
Where the Landlord is willing to grant a new lease the Notice will set out the proposed terms.
The Tenant may either accept the terms offered (including the proposed new rent) or seek to negotiate better terms, often including a less expensive rent than the rent proposed by the Landlord.
Where the existing lease is a lease granted pursuant to the 1954 Act it automatically continues after the expiry of the contractual term if the Tenant remains in occupation of the premises for business purposes unless and until it is terminated in accordance with the terms of the 1954 Act by either the Landlord or the Tenant. It is most important that you remain in occupation of the Property and are continuing using it for the purposes of your business in order to preserve the right of renewal.
Termination of the Lease by the Landlord
Where the Landlord serves a Notice it must specify a termination date complying with the terms of the lease and the 1954 Act. The termination date must be at least 6 months after service of the Notice and cannot be before the expiry date of the existing lease.
Terms of the proposed new Lease
If a Landlord specifies in the Notice that it is willing to grant the Tenant a new lease on the same terms but with an increased rent, the Tenant may negotiate the proposed rent itself or may choose to appoint a surveyor to assess the appropriate rent.
In some circumstances the Landlord will include proposals in the Notice other than rent which are different from the terms in the existing lease.
If the parties cannot agree the terms by negotiation, either party can apply to Court and ask the Court to make an order as to the appropriate rent and other terms. If an application to Court becomes necessary, the Court will assess the current market value of the property and adjudicate on whether any other variations to the terms of the existing lease appropriate.
The deadline to make an application to Court is the date set out at paragraph 2 of the Section 25 Notice which will be 6 months following the date of service of the Notice. Accordingly, if the Tenant cannot reach agreement with the Landlord on the terms of the new lease it should make an application to Court before the termination date.
If an application is not made to Court by the termination date and a new lease has not been finalised by that date, the existing lease will come to an end and the landlord will be able to evict the tenant or demand a much higher rent than market value.
It is possible for the parties to agree to extend the deadline to allow more time to negotiate but a tenant is strongly advised not to seek to do so without seeking legal advice first as if any mistakes are made and the deadline is missed the Lease will come to an end.