Cost of lease renewal

In Business Property

When renewing a commercial lease, it is essential to check whether the lease is protected under the Landlord and Tenant Act 1954. If the lease is covered by the Act (‘protected’), either party has the right to renew the lease when it comes to an end.

If, on the other hand, the lease is not covered (‘unprotected’), then lease renewal is at the landlord’s discretion.

Protected leases

With protected leases, either the landlord or tenant may start the renewal process by serving a specific form of notice on the other, 6–12 months before the date on which the renewed lease is to begin.

Even where the parties agree about extension, it remains important to seek expert legal advice in documenting this appropriately, as this will minimise the chance of any future disputes. Legal fees for preparation and registration of the appropriate notice, and review of the other party’s response, might be in the region of £500­–£800 (excluding VAT). If negotiations between the parties are necessary, a similar amount again might be incurred for further advice.

As detailed in our article on lease renewal, protected tenants and their landlords have certain rights to trigger, or oppose, lease renewal. Where the parties are not in agreement, it may be necessary for either party to ask the courts to decide the matter. More significant legal expenses may therefore arise.

Such proceedings can be brought in the County Court, unless complexity justifies High Court proceedings. The opposing party needs to lodge written defences with the court. Where either party believes that they have a strong case for dismissal without trial, they may apply to the court for a summary judgment. Unless this is granted, however, the case will proceed to an evidential hearing, potentially requiring expert witnesses (e.g. valuers or surveyors).

Legal fees for such proceedings might amount to a significant four-figure sum, once experts’ fees and court fees are taken into account, so it is worth seeking out legal advisers which offer a fixed-fee arrangement.

The costs which the courts may award need to be considered too. The losing party is often ordered to pay their opponents’ costs, in addition to their own. However, this is not an absolute rule, and might not be applied if, e.g. the winning party unreasonably declined an out-of-court settlement. Furthermore, the defeated opponent is often ordered to pay only a percentage of costs, and even these might not always be recoverable.
These financial risks should therefore be considered carefully before taking court action.
  

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