Guidance for tenants when initiating commercial lease renewals

read time: 4 mins

If you are a leaseholder of commercial premises and your term is coming to an end you may have the right to renew under the Landlord and Tenant Act 1954. This act gives certain leaseholders the right to be granted a new lease after the expiry of their fixed term. 

In this article, we answer the common questions leaseholders find themselves asking when seeking to renew their lease.

Do I have the right to renew my lease? 

Leases of premises occupied for business purposes can benefit from automatic protection by the Landlord and Tenant Act 1954, giving the tenant a right to renew at the expiry of the fixed term.

A lease can be contracted out of the renewal rights under this act if the landlord:

  1. Includes an express term in the lease stating the lease will not have renewal rights under the act. 
  2. Gives advance warning to the tenant, not less than 14 days before the start date, that the lease will not have renewal rights under the act. To be effective this should be evidenced by the tenant signing a statutory declaration to this effect. 

A lease that is contracted out of the act will not have any renewal rights at the expiry of the fixed term. After the expiry of the fixed term, the lease will become periodic based on the frequency rent is paid and the landlord can choose whether or not to grant a new fixed term lease. 

How can I initiate lease renewal? 

If a lease has renewal rights under the Landlord and Tenant Act 1954, either the landlord or the tenant can initiate a procedure to grant a new lease by serving a notice on the other. When served by the tenant, this is called a section 26 request. Amongst other things, the section 26 request should contain the date on which the proposed new lease will start as well as your proposed terms for the new lease set out in a schedule to the request. 

How much notice is needed to renew the lease and how can I serve?

A section 26 request cannot terminate the current lease and request a new lease before the expiry of the fixed term. The request must also be served not more than 12 months, nor less than 6 months before the date on which it is proposed the new lease will commence. 

The lease will often contain specific clauses dealing with service of notices including when they will be deemed served. It is critical that before serving any notice that the lease provisions on service are properly considered. 

Mistakes with the timing and service of the section 26 request can mean the lease renewal process is not initiated and a replacement is required to be served. Given the minimum timescale is 6 months this can have significant impact especially if rents are increasing. 

Can my landlord oppose the grant of a new lease? 

The service of a section 26 request does not guarantee the grant of a new lease. If your landlord opposes  the grant of a new lease, they must serve a counter notice on you within two months of your section 26 request specifying the ground(s) on which they oppose.  

The Landlord and Tenant Act 1954 sets out the valid grounds a landlord can rely on to oppose a lease renewal. Some of the grounds are discretionary, meaning that even if made out a court could decide to grant a new lease. Other grounds are mandatory meaning that if made out, the court would have to refuse to grant a new lease. Certain grounds also require a landlord to pay compensation to a tenant if relied upon to oppose renewal.

Discretionary grounds include:

  • Disrepair by the tenant.
  • Rent arrears or a history of late payments.
  • Breaches of the lease by the tenant.

Mandatory grounds include:

  • Landlord intends to redevelop the premises.
  • Landlord intends to occupy the premises themselves.
  • Landlord is able to provide suitable alternative premises to the tenant.

What if the parties can’t agree the terms for the new lease?

After service of the section 26 request, if renewal is not opposed the parties will seek to negotiate the terms for the new lease. 

If the parties cannot agree on the terms for the new lease, either the landlord or tenant can make an application to the court to decide on the terms. The timing of the application to court is critical and must be commenced before the expiry of the section 26 request. 

Often the thought of issuing court proceedings can be unattractive when the parties are in negotiations. Therefore, extensions can be agreed to ensure negotiations for amicable resolution can be fully concluded with court applications being a last resort. 

In need of assistance?

Our specialist team can help with any stage of the lease renewal process. We often recommend tenants of business premises to take advice at an early stage in the lead up to the lease expiring. 

If you have any further questions or queries, please contact the property litigation team.

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