Should you stay or should you go? A guide to renewing your lease

When was the last time you renewed your lease?

The trend for shorter term leases means that as tenants, you will be considering renewal on a more regular basis, and more fundamentally, you should be considering the terms you want to renew on and if you want to renew at all.

The Landlord and Tenant Act (1954) governs lease renewals and gives business tenants important legal protection – the security of tenure – to renew the lease when it comes to an end. In order to formally renew a lease under this Act, the landlord must give notice to terminate the lease by serving what’s known as a section 25 notice, and then offering new terms or opposing a renewal. From the tenant’s point of view, they can serve a section 26 notice to request a new lease.

This formal procedure can be carried out up to 12 months before the lease is due to expire, so this is really the time for tenants to start looking at their current property position, to weigh up if new terms should indeed be requested. Tenants should examine things such as the location of the premises, the rent, the standard of the building they occupy in order to consider the terms of renewal properly.

Should you stay?

If you do want to remain in the property, taking some professional advice on the rent from a local property agent will play a major part here. If the market is stable then you would be well advised to simply allow your tenancy to continue under section 24 of the 1954 Act. That said, if rents are on a downward spiral, serving a section 26 notice would be the way forward so that you can obtain more agreeable terms with a reduction in rent.

If you want to go?

If having weighed up the pros and cons of staying versus leaving, you decide to vacate the premises, you should have an exit strategy in mind. Tenants should be aware of their repair and reinstatement obligations should they wish to leave. Tenants should also consider what would happen if they were unable to vacate until after the lease runs out. This would require a section 27 notice being served, which would result in three months of rent from the date it was served.

Bear in mind that with the current state of decline in high streets in particular, landlords may be more willing to agree to favourable terms than ever before. It would be a better alternative than an empty property. Tenants are often in a good position when it comes to renewing their lease for this reason.

If the tenant and landlord agree to renew the lease, yet can’t agree on the terms of said lease, then the Court will settle the disagreement by setting the rent and other terms of the agreement.

Landlords can oppose the renewal of a lease for a limited number of reasons, including failure to pay rent or for their own needs – perhaps they want to move back in to the building themselves or redevelop it.

In this situation, landlords can simply apply to the court at the end of the tenancy or oppose the application to renew. The court would then decide if the new lease should be granted.

There is a lot to consider when renewing or terminating a lease, including cost, impact on the existing business and clients. It’s therefore important to seek advice at an early stage to consider all the options fully.

If you’d like to speak to one of the Commercial Property team, please call us on 0333 344 4772 or email dba@stephensons.co.uk

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