Tenant not protected by Landlord and Tenant Act 1954
If the tenant does not have the protection of the act then they do not have the right to renew the lease and it will therefore come down to negotiations between the parties as to what is agreed. The landlord is in a stronger position where the tenant does not have the protection of the act.
Tenant protected by Landlord and Tenant Act 19
If the tenant does have the protection of the act then the lease will automatically continue at the end term. It will continue on the same terms and conditions as previously, for example the obligation to pay the rent will remain the same. This position will continue until either the landlord or the tenant bring the existing lease to an end by the service of the appropriate statutory notice. The notice period set out in that form has to be a minimum of 6 months but no more than 12 months from the date of its service. The landlord, in its notice, sets out whether it is willing to renew the lease and if so will set out outline terms. The landlord can also state that it is not willing to renew the lease. This is dealt with under the heading of security of tenure.
Renewing a lease
Once the notices are served there are strict timescales that have to be applied. If they are not complied with the tenant can lose the protection of the act so great care must be taken.
The benefit of the act from the tenant’s point of view is that the terms remain the same only the rent maybe altered. The landlord is not able to introduce substantive new terms into the renewal lease. For example if the existing lease does not contain a provision allowing the landlord to recover the cost of insuring the property the landlord would not be able to insert such a provision into the new lease.
The rent and term can be renegotiated but the rent can only be revised to the current market rent of a similar property in that location. Thus the rent can either go up or down depending upon the local rental levels so it is important for landlords to take a surveyor’s advice regarding the level of rent.
If the parties are able to agree the terms and conditions of a new lease then a new document is drawn up reflecting those agreed terms. If the existing lease is only a few years old the easiest course of action is to use a document called a lease by reference. This is a short form agreement which incorporates all the terms and conditions of the former lease and sets out any variations, such as the rent and term. This is a more cost effective way to proceed rather than creating a whole new document.
If the parties cannot agree then proceedings can be issued and the matter is ultimately decided by the courts. The majority of cases settle before trial as the items genuinely in dispute between the parties do not usually justify the costs of proceeding to trial. If the renewal does become litigious then the matter will be dealt with by our commercial litigation team.
This is a general overview on the issues that could arise when renewing a commercial lease, if you would like to speak to a member of our commercial property to discuss your situation please call us on 01616 966 229 and our team would be happy to provide further and more detailed guidance.