If you run a business from rented premises, the expiry of your commercial lease can be an important time. You may be wondering whether you have to leave, whether your landlord has to offer you a new lease, or what happens if you simply carry on trading from the premises.
The answer depends, in particular, on whether your tenancy is protected by the Landlord and Tenant Act 1954.
Does my commercial lease automatically end when it expires?
Not necessarily.
Commercial tenants often assume that when the date stated in their lease is reached, they must immediately leave the premises. That is not always the case.
If your tenancy is protected by the Landlord and Tenant Act 1954, you may have a statutory right to remain in the premises after the contractual expiry date until the tenancy is brought to an end in accordance with the Act.
This is one of the reasons why it is important to check your lease before assuming that you need to vacate.
What is a protected commercial tenancy?
A commercial tenancy will generally have protection under the Landlord and Tenant Act 1954 if the premises are occupied by the tenant for the purposes of its business and the tenancy has not been excluded from the protection of the Act.
It is important to check the lease carefully because some commercial leases are contracted out of the 1954 Act. This usually involves a prescribed procedure being followed before the lease is granted.
If your lease was contracted out, you will not have the same statutory right to a new tenancy when the lease expires.
Can I stay in the premises after my lease expires?
If your tenancy is protected, the expiry of the contractual term does not necessarily mean that you have to leave.
In broad terms, the existing tenancy can continue until it is terminated in accordance with the statutory procedure.
This can provide a tenant with considerable protection. However, it does not mean that the tenant can remain in the premises indefinitely without paying rent or complying with the other obligations of the tenancy.
It is therefore important to take legal advice before simply allowing the lease to expire without considering what happens next.
Does my landlord have to give me a new lease?
If your tenancy is protected by the 1954 Act, you may have a statutory right to apply for a new tenancy.
However, there are circumstances in which a landlord can oppose the grant of a new tenancy. These are known as the statutory grounds for opposition.
For example, a landlord may be able to oppose renewal because it genuinely intends to redevelop the premises or, in certain circumstances, because it intends to occupy the property itself.
Whether a landlord can successfully oppose renewal will depend upon the particular circumstances and the statutory ground being relied upon.
What is a Section 25 notice?
If a landlord wants to bring a protected business tenancy to an end, it can serve a Section 25 notice.
The notice will specify a termination date and will state whether the landlord is willing to grant a new tenancy.
If the landlord is opposed to the grant of a new tenancy, the notice should set out the relevant statutory grounds.
A Section 25 notice does not necessarily mean that the tenant has to leave on the date stated in the notice. If the tenant is entitled to a new tenancy and challenges the landlord’s opposition, the matter may ultimately need to be determined by the court.
Can I ask for a new lease?
Yes. A tenant with a protected tenancy can, in appropriate circumstances, serve a Section 26 request asking for a new tenancy.
This can be an important option where the tenant wants to remain in the premises but the landlord has not taken the initiative to start the renewal process.
There are strict rules about the timing and content of statutory notices, so it is sensible to take advice before serving one.
What happens to the rent?
Rent is often one of the most important issues when a commercial lease is renewed.
The rent under the new tenancy may be different from the rent under the existing lease. The appropriate rent will depend upon factors such as the property, its location, its permitted use, market rents and the terms of the new tenancy.
A tenant should not assume that the landlord’s proposed rent is necessarily the correct market rent.
There may be scope to negotiate the rent and, if the parties cannot agree, the court may ultimately determine the terms of a new tenancy, including the rent.
What about the other terms of the lease?
A lease renewal is not simply about agreeing the rent.
The parties may need to consider:
- the length of the new lease;
- break clauses;
- permitted use;
- repairing obligations;
- service charges;
- buildings insurance;
- rent reviews;
- assignment and subletting;
- alterations;
- guarantors; and
- other terms and conditions.
The starting point will often be the existing lease, but that does not necessarily mean that every term of the old lease will simply be carried forward unchanged.
What if my landlord says I must leave?
Do not assume that you have to leave simply because your landlord has told you that the lease is expiring.
The first question is whether your tenancy is protected by the Landlord and Tenant Act 1954 and, if so, what notices have been served.
You should also check whether the original lease was contracted out of the 1954 Act.
If you have received a notice from your landlord, it is particularly important to obtain legal advice promptly because statutory time limits can apply.
What if neither the landlord nor the tenant does anything?
This is a common question.
If the tenancy is protected, the tenant may have the right to remain in occupation after the contractual expiry date while the statutory tenancy continues.
That does not mean that doing nothing is always the best option.
For example, a tenant may want the certainty of a new long-term lease, may want to negotiate a lower rent, or may want to make changes to other terms of the tenancy.
Equally, a landlord may want to recover possession or may want to agree a new lease on different terms.
Taking advice before the contractual expiry date can therefore put the tenant in a much better position.
Should I negotiate a new lease with my landlord?
In many cases, yes.
There is no reason why a landlord and tenant cannot simply negotiate the terms of a new lease rather than relying entirely on the statutory renewal procedure.
However, a tenant should understand their existing legal position before entering into negotiations.
This is particularly important where the existing rent is below the current market rent. A tenant may have more negotiating leverage than they initially realise, particularly if they have a protected tenancy.
It is therefore worth obtaining advice before agreeing to a significant rent increase or signing a new lease.
When should I speak to a solicitor?
Ideally, do not wait until the lease has expired.
A solicitor can check:
- whether the tenancy is protected;
- whether the lease was contracted out of the 1954 Act;
- whether any notices have been served correctly;
- what rights you have to remain in the premises;
- whether the landlord can oppose a new tenancy;
- the likely approach to rent and other lease terms; and
- whether you should negotiate a new lease or use the statutory renewal procedure.
Commercial lease renewals can involve significant sums of money and can affect the future of your business. Getting advice early can help you avoid accidentally giving up important rights or agreeing to terms that are less favourable than necessary.
Need advice about a commercial lease renewal?
If your commercial lease is approaching its expiry date, or your landlord has contacted you about renewing the lease, we can advise you on your rights and the best way forward.
We can review your existing lease, explain whether you have protection under the Landlord and Tenant Act 1954 and assist with negotiating and documenting a new lease.
Hastings & Co Solicitors advise landlords and tenants throughout Essex on commercial lease matters.
Contact Liam Hastings by email on liam@hastingsandco.co.uk or by telephone on 01621 876 031.