Commercial Lease Extensions
In these uncertain times, it has never been more important to have certainty in your business. If you do have a commercial lease, it is vital to know your rights in extending your lease and terminating it if necessary.
Part II of the Landlord and Tenant Act 1954 (LTA) provides commercial leaseholders with ‘security of tenure’. This means your commercial lease will not automatically end upon expiry of the contractual term; and your lease will only come to an end if the termination provisions within Part II of the LTA 1954 have been followed. If the contractual term of your lease expires, you will be able to renew your lease on substantially the same terms as specified in the original (save for rent), by way of a statutory renewal.
It should be noted however, that security of tenure can be removed from a lease through a procedure known as ‘contracting out’, and therefore not all leases have this renewal ability. The remainder of this article assumes you retain the ability to renew.
Firstly, under the act, at the end of the contractual term of your lease, your lease is deemed to automatically renew on a periodic basis (i.e. from month to month, from quarter to quarter, or from year to year, depending on how frequently you pay ground rent. The lease will continue indefinitely from period to period until you either vacate the property, or you or your landlord terminate the tenancy (with or without the grant of a new tenancy).
The process of renewal can be triggered in the following ways:
- Firstly, your landlord may serve a Section 25 Notice upon you. This notice may seek to terminate your lease (and in those circumstances the landlord must specify the ground on which they wish to terminate the lease) or can terminate your lease but offer you a new lease on terms which they then propose. The notice should be in a prescribed format. Any proposal cannot substantially vary the previous lease, albeit the renewed lease can modernise the previous lease, alter the rent payable, alter the term, or remove/insert a break clause.
- Secondly, you could start the process by serving the landlord with a Section 26 Notice. This notice should also contain your proposed terms for a new lease. Such notices must again be drafted in the correct prescribed form.
Once notices have been served, you do have the ability during the notice period, which is at least 6 months, and no more than 12 months, to negotiate on the terms of the new lease. However, if terms and the drafting of the lease cannot be agreed within the period of the notice, then you may either need to extend the notice by agreement with the other party, or issue proceedings to seek a court determination. It should be noted, that if the rent is to increase under the new lease, the increased rent will be deemed to be due and payable from the date of service of the notice (or the court may order that an interim rent at a differing level again be paid and will set the level of rent to be paid).
Whilst you will continue to pay your usual rent until the new lease is completed upon, it does mean that at the time of completion, you will be required to pay the difference in rent due under the new lease and that actually paid from the date of the notice until completion. This can result in a large sum being paid very quickly.
If you receive a Section 25 Notice or wish to serve a Section 26 Notice, we would strongly recommend that you obtain independent legal advice so that you are aware of your rights going forward. Such notices must be drafted correctly and must be served within the correct strict time limits. Receiving such legal advice could therefore save you both time and costs in the long term and also preserve your relationship with the other party.
If you do wish to seek advice in relation to renewing your commercial lease, please contact Lorraine Lancaster on 01702 662963 / 020 35537115/ 01277 889193 / 01268 855679.