For landlords and tenants, ensuring you have a watertight business lease that suits your needs is essential for the smooth running of a business.
If you have business premises with an end date on the lease, it pays to be prepared and seek legal advice in this complex area of law, at least 12 months in advance.
There are different types of business lease and each has different risks and methods for handling them depending on what a landlord or the tenant is trying to achieve.
The first thing to do is check what type of lease you have and checking the terms of the lease itself can usually do that. Some have protection under Sections 24 to 28 of the Landlord and Tenant Act 1954, which allows a tenant to remain in possession of the property, regardless of the end date, until either party brings it to an end or renews it. This is called ‘holding over’.
If you have this type of lease, you have statutory rights and may well be entitled to a new lease on updated terms and at a market rent that could be higher or lower than the current rent.
Either party can serve notice offering or requesting a new lease but there are strict timescales for serving the notices that must be in a particular form containing the proposed new terms.
Precisely what to do and, most importantly, when to do it will often depend on the state of the market, which is why specialist advice, usually involving a surveyor, is needed well in advance of the end of the lease.
A landlord who wants to end a protected lease may find that difficult or impossible to do if their tenant wants to remain in the premises. There are limited grounds entitling the landlord to claim vacant possession of the premises if the tenant is protected by the 1954 Act.
Even the process of a tenant wanting to end a protected lease can be tricky. If a tenant vacates the premises on or before what it thinks is the end of the term but miscalculates the date or leaves stock or equipment behind, it could well mean that the lease will continue. Alternatively, a tenant could serve a minimum of three months notice on the landlord informing it of the decision to end the lease but again the service of that notice needs to be carefully handled.
Whether the lease is about to end or has already ended will depend on what notice should be served and of course it must be served on the right person at the right address which isn’t always as easy as it sounds!
If a lease is ‘contracted out’, meaning that the tenant’s statutory rights under the 1954 Act do not apply, the lease will end on the date specified in it.
Although this gives a degree of certainly, it means landlords and tenants alike cannot ignore the end date. If you’re a tenant, you need to discuss a renewal with your landlord at an early date because if you can’t agree terms, you’ll have to hand back the keys and find new business premises.
Landlords can’t ignore the end of a contracted out lease term either because if they allow the tenant to continue occupy the premises and accept the rent they risk creating a protected form of lease giving a tenant statutory rights and, consequently, a much stronger negotiating position.
So whatever your lease says is the end, it might not be the end after all! Whether you, as a landlord or tenant, want to end or renew a lease it’s rarely straightforward so getting proper advice at an early stage is vital.
For any enquiries, please contact David Raymont at in the Commercial property team on 01743 266276 or email: firstname.lastname@example.org