When it comes to renewing the lease on your commercial property, it is often a much more difficult process than a rent review negotiation. The tenant has no obligation to stay and the opportunity is there for both parties to review the lease and rent terms. Whether it’s a shop, office space, or factory, a commercial lease is an essential prerequisite to the success of many businesses.
Protected and Non-Protected Leases
The majority of commercial leases benefit from having the security of tenure under the Landlord and Tenant Act 1954 (the Act), which states that a business lease can be renewed automatically by the tenant on similar but updated terms.
If a commercial lease is subjected to security of tenure, then the landlord can only reclaim possession if it is under certain circumstances, including:
- The landlord requires the property back, either for personal occupation, development purposes, or:
- The tenant has a history of not paying rent, has been in persistent breach of covenants, or:
- The property has been divided by subletting it into several units, meaning the whole property would command a higher rent if it were to be let together under one lease.
Actions Tenants Should Take When Their Commercial Lease is About to Expire
If you have a protected lease, the landlord is not able to dictate the new rent rate. If neither party can agree on the new rent, then the tenant can make a court application to have the correct and current market value determined. If, when signing a commercial lease agreement, you have agreed to contract out of the Act, then you will not benefit from the security of tenure. The landlord can and may demand that you leave the premises on the expiry of the lease, or if they were to decide to renew your agreement, then they can offer new terms, including massively inflated rent.
Regardless of whether you have an unsecured or secure tenancy, you should start to think about your renewal around 18–24 months before your lease expires. Ideally, you should get in contact with your landlord 8–12 months before your end date. If you have the security of tenure, once you begin the request for a new lease, the landlord has two months to dispute the grant of a new lease based on one of the grounds above. While new terms are under negotiation, tenants have a full right to remain on the premises. Renewing a commercial lease may seem complicated, but the process can be relatively stress-free if tenants begin the process in advance and receive full legal advice through the process.
If you’re looking to appoint an advisor or would like some assistance with your commercial renewal, please don’t hesitate to get in touch with us today. Our lease advisory team can help you every step of the way.