Renewal of a Commercial Property Lease

In Business Property

Most commercial property leases in England and Wales are subject to security of tenure under the Landlord and Tenant Act 1954.  This means that both tenants and landlords have the right to renew the lease when it comes to an end, any number of times.

If either or both parties wish their lease to continue, but the other party is unwilling or unable to agree terms, the willing party may apply to the county court for a new tenancy. Before doing so, they need to submit specific documentation to the other party (a ‘section 25 notice’ in the landlord’s case, a ‘section 26 request’ in the tenant’s).

It is important to note that not all tenants have security of tenure. Those with fixed-term tenancies of six months or less do not, for example, and neither do those who are sub-leasing the property to another business. Some leases also ‘contract out’ of security of tenure from the start, by excluding (on 14 days’ notice) the tenant’s rights under the 1954 Act.

Once a lease is in place, it is not possible to dispense with security of tenure as such, although the landlord and tenant may agree to surrender the lease, either immediately or at a future date. This removes the tenant’s right to renew. Again, the landlord is obliged to give the tenant 14 days’ notice, warning of the consequences of agreeing a surrender.

If the parties cannot wait 14 days, the tenant may sign a statutory declaration that they have received a notice from the landlord, and have understood its terms.

Some leases also have a ‘break clause’ allowing either the landlord or tenant to end the lease early.

Landlords are entitled, in some circumstances, to oppose a lease renewal; they can apply (after serving the tenant with a section 25 form) to court to end the lease, or oppose a renewal application by the tenant. 

The grounds for opposition include where:
  • the tenant has breached the lease terms, e.g. persistently paying rent late, or failing to keep the property in good repair.
  • the landlord has offered other suitable premises
  • the tenant is occupying part of a building which the landlord wishes to sell as a whole.
  • the landlord wishes to demolish or rebuild the premises, or repossess them for their own use.
If a tenant does nothing after receiving a section 25 form, the tenancy will expire automatically on the specified date.  If, however, the tenant applies to court for a new tenancy, the landlord will need to persuade the court that one or more of the specific grounds applies. If not, the landlord might be ordered to compensate the tenant for unjustly ending the lease.

In summary, there are many factors to consider when considering extension of a lease. It is best to take expert legal advice when the lease is originally agreed, in order to avoid any future difficulties. It is equally important, however, to have expert legal advice on hand if such an issue arises during the term of a lease.
  

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