Having a solid lease on their commercial property is essential for the success of any business – be it an office, factory, shop or warehouse. So if your lease is coming to the end of its term it is important to seek professional advice to ensure your new lease is agreed as smoothly as possible, and under terms which you find favourable.
Under the Landlord and Tenant Act 1954 most commercial premises benefit from security of tenure, meaning that a lease can be automatically renewed by the tenant on terms which are close to the original lease.
The Act states that a landlord can only get back possession if:
- The landlord requires the property for re-development or personal occupation
- The tenant has repeatedly failed to pay rent or breached covenants
- The property has been sublet into multiple units but would command a higher rent if let as a whole under one lease
However, one qualifying requirement for the protection given by the Act to apply is that you must not have ceased occupation of the premises on or before the termination date of your lease!
With a lease protected under the Act your landlord cannot simply dictate a new rent. If the parties cannot agree on a new value for the rent, the tenant can apply to the court to arrive at the correct market rent.
With security of tenure, once you have requested a new lease the landlord has a period of two months to dispute the granting of the new lease under the exemptions listed above. If the landlord is happy to offer a new lease then negotiations to define the terms can begin, with each party appointing a valuer to assess the new rental figure.
However, if you have agreed to contract out of the Act when signing your lease you will have no security of tenure. The landlord has the option to impose harsh new terms, including greatly increased rent, as well as requiring you to vacate the property when the lease expires, or at any time thereafter.
Under such arrangements it is imperative that the tenant should start to negotiate extending their lease as soon as possible, and even look for alternative properties at the same time in case it proves impossible to agree a new lease with the current landlord.
With any commercial lease it is important to think about what your plans might be at least 12 months before the lease expires. At the same time you should contact a professional property solicitor, who will examine your lease and advise you of the options available to you.
There can be many pitfalls when negotiating commercial leases and the laws covering them can be complex. Whilst most leases are renewed smoothly, obtaining the best legal advice early on in the proceedings will help the process to be completed with the minimum of complications.