The Landlord and Tenant Act 1954 (the Act) governs what happens at the end of most commercial leases (unless they are specifically excluded) and lease renewals. The process can be one of the most challenging elements of commercial property ownership for both landlord and tenant and comes with many potential pitfalls.
At the time of renewal, the overall terms of the existing lease may, by agreement, be re-negotiated and amended, as well as the rent itself which can be altered either up or down.
What happens when the Term of my Lease comes to an end?
If you have a lease that is a within the Act then generally speaking you will have an automatic right to renew your lease – unless you have committed a breach of your lease terms or your landlord raises certain specific objections to renewal – the most common of which are redevelopment or owner-occupation by your Landlord.
For these to apply, your Landlord must state and prove the ground and if proven you would be entitled to compensation.
What is a Section 25 Notice?
This is a Notice that a Landlord serves to bring to an end an existing lease or tenancy and within which it must state whether or not he/she is prepared to grant a new tenancy.
What is a Section 26 Notice?
This is a Notice or Request that a Tenant can serve to request that the Landlord grants a new tenancy. The Request must give at least six and no more than twelve months’ notice.
The lease of my premises is contracted out of the 1954 Landlord and Tenant Act. What does this mean?
Contracting out of the Act essentially removes the protection given by the Act. As such, if your lease is contracted out you have no right to renew at the end of the term. You may, however, still be able to negotiate renewal terms, but such terms would be purely a matter of negotiation and may be more onerous than before or less depending on market conditions and bargaining positions.
I have a Business Tenancy within the Landlord and Tenant Act. What happens if neither party serves a Notice to terminate it?
As long as a tenant stays in occupation the lease will continue beyond the end date on the same terms until either party serves a Notice to bring it to an end. As such there can be tactical advantages in delaying a Notice or alternatively by serving a Notice first, dependent on whether rental levels are rising or falling.
Will my rent only go up on Lease Renewal?
No, unlike the majority of rent reviews in commercial leases, at a lease renewal/expiry the rental can go up or down and would generally be set at the current market level.
What happens when my Landlord serves a Section 25 Notice?
In order to protect you rights to renew your lease, you must not ignore the Notice, but should apply to the Court for a new tenancy, at the latest by the termination date which is stated in the Landlord’s Notice. If you do not apply to the Court you will lose your renewal rights. The Landlord’s Section 25 Notice must give you a minimum of six months and a maximum of twelve months’ notice of expiry of your lease. A Tenant’s Section 26 Notice must do the same.
Repairing obligations
Under the terms of the majority of commercial leases, the tenant is obliged to keep the property in good condition and therefore this potentially gives rise to a substantial liability at lease expiry. Addressing this point at the time of negotiation can provide the tenant with an opportunity to reduce their liability and subsequently, offer an additional level of cost certainty.
Who pays the legal fees?
It is important to note that it is not standard practice to pay the Landlords costs and each party should pay their own.
For any lease renewal enquiries, please do not hesitate to get in touch with the team.