What will happen on expiry of the contractual term of your lease will largely depend upon whether the lease is contracted inside or outside of Part II of the Landlord and Tenant Act 1954 (“LTA 1954”).
Landlord and Tenant Act 1954
Subject to certain exceptions, Part II of the LTA 1954 grants business tenants what is known as “security of tenure”. This means that a commercial lease will not automatically come to an end upon expiry of the contractual term; it will only come to an end if it is properly terminated in accordance with the provisions of Part II of the LTA 1954 (as discussed below).
Tenants of commercial leases (subject to certain exceptions) automatically benefit from security of tenure; however, these automatic rights of renewal can be removed using the proper “contracting out” process.
If the intention is for a lease to be excluded from the LTA 1954, then prior to completion of the lease the landlord must serve a notice on the tenant explaining the exclusion of these rights and once satisfied as to the effect of the exclusion of these rights, the tenant must make a declaration to that effect.
If your lease is an “unprotected lease”, i.e. it is excluded from the LTA 1954, then you will need to vacate the property on expiry of the contractual term. Further, you must give the property up in accordance with the terms of your lease. You may be able to negotiate a renewal lease with the Landlord prior to expiry of the contractual term; however, the landlord will be under no obligation to accept such a request.
If your lease is “protected”, i.e. the security of tenure provisions have not been contracted out, it will not automatically end on expiry of the contractual term and you will be under no obligation to vacate. Your tenancy will continue on the same terms as specified in the lease, unless and until it is terminated/renewed in one of the ways discussed below. Further, you will have an automatic right to a statutory renewal lease which can only be challenged by your landlord on limited grounds.
If you want your lease to come to an end, then the simplest way to terminate it is to simply give the property up in accordance with the terms of your lease on expiry of the contractual term. If you continue in occupation past this date, and then decide that you wish to vacate, you may end the tenancy by giving not less than three months’ notice to the landlord. You should carefully consider whether or not your lease is a protected lease prior to serving the landlord with any notice to quit. Such notices are irrevocable and, if your lease was protected and you serve a notice to quit, you will irrevocably surrender your security of tenure.
Alternatively where you have a protected lease, you may wish to remain in occupation of the property and exercise your right to a statutory renewal lease. The renewal process can be triggered by either you or the landlord, in the following ways:
- The landlord may serve you with a non-hostile Section 25 Notice to initiate a new tenancy. The notice will set out the landlord’s proposed terms. There is case law which stipulates that for renewal of a protected lease, there cannot be any substantial variations or departures from the previous lease, save for modernisation and rent provisions.
- You may initiate the process by serving the landlord with a Section 26 Notice, setting out your proposed terms for the new lease. We would strongly advise that you seek legal advice before serving any notices on the landlord, and in plenty of time prior to expiry of the contractual term. This is because any notices will need to be served in accordance with the terms of the lease and as governed by statute, in the prescribed form. The landlord will have a period of 2 months to oppose an application for a renewal lease, although they would need to specify their ground(s) for opposition, as discussed below.
The time limits for serving and/or for responding to notices are strict and we strongly recommend that you take legal advice in relation to such notices.
For further information, if you are considering taking or granting a commercial lease, or would like to discuss your options with a view to renewing an existing lease, please do not hesitate to contact us. Our experienced Commercial Property Department can be reached on 01702 338338, 01277 500123, or 020 8049 5888.