Key things for commercial tenants to know at the point of lease renewal
The Landlord and Tenant Act 1954 protects tenants of commercial property with the automatic right to renew their lease upon expiry however this right can be excluded by the landlord at the outset of the lease.
If protected by the Act, either the Landlord or tenant can service notice on the other via a section 25 Notice (for the Landlord) or a Section 26 Notice (for the tenant) in the last 12 months of the lease term to initiate lease renewal or termination proceedings.
The commercial lease renewal process needs to be handled correctly to ensure your business isn’t negatively affected. Ensuring you have the right advice, strategy, timing and notices is key.
Key things for tenants to consider ahead of lease renewal dates
As a commercial tenant, you need to evaluate your business needs to decide if a lease renewal is wanted at the point of expiry or if you will use the expiry date as a chance to scale up or scale down your business premises. (See our acquisitions service for help in securing a new business premises).
It is important to check whether your lease falls inside or outside of the Act so you understand the position you will be in at the end of the lease term and can plan your strategic negotiations accordingly. Lease renewal dates present the perfect time to renegotiate rents which can be negotiated up or down depending on the open market rental value at the time of renewal.
- You should start to consider your options for a lease expiry at least 24 months before the expiry date.
- If your lease falls outside of the Act, you will have to leave at the end of the lease unless you can agree terms for a new lease or the lease contains a right to renew.
- If your lease falls outside of the Act and you want to stay, you will need to begin negotiations in plenty of time to allow for securing a new premises if the landlord pulls out.
- Although tenants protected by the Act have the right to renew, a lease renewal can be refused if any of the statutory grounds to deny are met, including; the landlord wants to occupy the building or develop it, or the tenant has persistently breached lease terms.
- The basis on which the rent will be determined will be specified in the lease agreement and is usually the open market rental value’ of the premises at the date of the rent review but some leases will link the new rent to the increase in the retail price index instead. Either landlord or tenant can request a rental valuation at any time to establish if they’re getting the best deal available to them.
How to initiate lease renewal proceedings
If you’re a commercial tenant and want to initiate lease renewal proceedings, you need to prepare and issue a section 26 Notice with the help of a surveyor. The document will state the terms you require including length of new lease and expected rent etc. The landlord then has two months to respond and let you know if they agree to your request.
The lease renewal process can be triggered by either a landlord or a tenant but a surveyor can only act for one side of the negotiation at any one time. So if you’re landlord has already instructed us, we cannot work for you as the tenant too.
If the landlord initiates proceedings by serving a section 25 Notice, the document will state that the lease will end at the original contracted date and if they wish to offer you a new lease, the terms proposed for it.
Need advice or services?
We have an experienced team of surveyors specialising in commercial lease renewals and rent reviews operating throughout London, Buckinghamshire, Surrey, Hampshire, Oxfordshire and Hertfordshire. Use our contact form to get in touch with Nathan Hall, Head of General Practice.
Want to hear more?
If you found this article helpful and would like to receive more posts like this directly to your inbox, subscribe to receive our promotions email and quarterly newsletter or follow us on twitter @KemptonCarr and like us on facebook to see them first.